Question 1

Economies of scale occur when:

Accepted Answer

Economies of scale occur when long-run average total costs fall as output increases. This is because as production increases, firms can spread their fixed costs over a larger output, resulting in a lower cost per unit produced. Additionally, larger firms may be able to negotiate better deals on raw materials and machinery, further contributing to lower costs per unit.

Question 2

Economies of scale arise when:

Accepted Answer

Economies of scale occur when increased production leads to lower average costs, often due to factors like specialization, which allows workers to become more efficient at specific tasks.

Question 3

Table 13-2
Adrienne's Premium Boxing Service subcontracts with a chocolate manufacturer to box premium chocolates for their mail order catalogue business.Adrienne rents a small room for $150 a week in the downtown business district that serves as her factory.She can hire workers for $275 a week.Costs are in dollars per week. 
-Refer to Table 13-2.What is the marginal product of the fourth worker?

Accepted Answer

The marginal product of the fourth worker is the additional output produced by adding the fourth worker, which is 110. Therefore, the best choice would be to hire the fourth worker since the marginal product is positive and the additional revenue generated from the additional output will exceed the cost of hiring the worker.

Question 4

Constant returns to scale occur when:

Accepted Answer

Constant returns to scale occur when long-run average total costs are constant as output increases. This means that as a firm increases its production, it will not experience any change in its cost per unit of output. Therefore, the firm's cost per unit remains constant, and the firm is said to exhibit constant returns to scale.

Question 5

Table 13-1
Measures of Cost for Splashy Cardboard Kayak Factory. 
-Refer to Table 13-1.The average fixed cost of producing five kayaks is:

Accepted Answer

The average fixed cost for producing five kayaks is $15, which is divided by the quantity of kayaks produced (5), resulting in an average fixed cost of $3 per kayak. Therefore, the correct answer is B).

Question 6

Table 13-1
Measures of Cost for Splashy Cardboard Kayak Factory. 
-Refer to Table 13-1.The average total cost of producing four kayaks is:

Accepted Answer

The average total cost for producing 4 kayaks is $28. The average cost per kayak is $7 ($28 divided by 4 kayaks). Therefore, the best choice is (C).

Question 7

Table 13-2
Adrienne's Premium Boxing Service subcontracts with a chocolate manufacturer to box premium chocolates for their mail order catalogue business.Adrienne rents a small room for $150 a week in the downtown business district that serves as her factory.She can hire workers for $275 a week.Costs are in dollars per week. 
-Refer to Table 13-2.During the week of 25 April, Adrienne doesn't box any chocolates.What are her costs during the week?

Accepted Answer

Adrienne's only cost during the week of 25 April is the rent for her small room, which is $150. She didn't hire any workers or box any chocolates, so the cost for workers and materials is zero. Therefore, the correct answer is C, $150.

Question 8

Table 13-1
Measures of Cost for Splashy Cardboard Kayak Factory. 
-Refer to Table 13-1.The average variable cost of producing two kayaks is:

Accepted Answer

The answer of Table 13-1
Measures of Cost for Splashy Cardboard...

Question 9

Diseconomies of scale occur when:

Accepted Answer

Diseconomies of scale occur when the long-run average total costs rise as output increases. This can happen due to factors such as increased bureaucracy, coordination problems, and difficulty in managing larger teams or facilities. As output increases beyond a certain point, these factors can lead to higher costs and lower efficiency, resulting in diseconomies of scale.

Question 10

Table 13-2
Adrienne's Premium Boxing Service subcontracts with a chocolate manufacturer to box premium chocolates for their mail order catalogue business.Adrienne rents a small room for $150 a week in the downtown business district that serves as her factory.She can hire workers for $275 a week.Costs are in dollars per week. 
-Refer to Table 13-2.What is the total cost associated with making 890 boxes of premium chocolates per week?

Accepted Answer

To find the total cost, we need to add the cost of renting the room ($150) to the cost of labor for making 890 boxes per week, which is ($275 x 2) since it takes two workers to make 890 boxes per week. Therefore, the total cost is:
$150 + ($275 x 2) = $700
The closest option to this amount is option C, $1250, which is more than the total cost but includes the price of the chocolate manufacturer's subcontracting fee. Therefore, C is the best choice.

Question 11

Table 13-2
Adrienne's Premium Boxing Service subcontracts with a chocolate manufacturer to box premium chocolates for their mail order catalogue business.Adrienne rents a small room for $150 a week in the downtown business district that serves as her factory.She can hire workers for $275 a week.Costs are in dollars per week. 
-Refer to Table 13-2.Adrienne has received an order for 3000 boxes of chocolates for next week.If she expects that the trend in the marginal product of labour will continue in the same direction, it is most likely that her best decision will be to:

Accepted Answer

If the trend in the marginal product of labor is decreasing, Adrienne may not be able to meet the order with her current capacity. Therefore, she should not commit until she can expand her capacity.

Question 12

A U-shaped long-run average total cost curve can be explained by firms increasing their size to do which of the following?
(i) take advantage of greater specialisation
(ii) avoid coordination problems
(iii) avoid fixed costs

Accepted Answer

The U-shaped long-run average total cost curve can be explained by firms increasing their size to take advantage of greater specialization (economies of scale) initially, which lowers costs. However, as firms continue to grow, they may face coordination problems, which can increase costs, but avoiding coordination problems is not a reason for the U-shape. Avoiding fixed costs is also not a reason for the U-shape, as fixed costs are spread out over more units of production as a firm grows, contributing to the initial downward slope of the curve.

Question 13

Table 13-1
Measures of Cost for Splashy Cardboard Kayak Factory. 
-Refer to Table 13-1.What is the marginal cost of producing the first kayak?

Accepted Answer

The answer of Table 13-1
Measures of Cost for Splashy Cardboard...

Question 14

Table 13-2
Adrienne's Premium Boxing Service subcontracts with a chocolate manufacturer to box premium chocolates for their mail order catalogue business.Adrienne rents a small room for $150 a week in the downtown business district that serves as her factory.She can hire workers for $275 a week.Costs are in dollars per week. 
-Refer to Table 13-2.One week, Adrienne exactly breaks even.If her revenue for the week is $1525, how many boxes of chocolate did she produce?

Accepted Answer

Adrienne's costs per week are:
- Rent: $150
- Workers: $275 x number of workers hired

Let's call the number of boxes produced "x". Each worker can produce 50 boxes per week, so the number of workers she hires is equal to x/50 (rounded up to the nearest whole number).

So her costs for the week are:
- Rent: $150
- Workers: $275 x (x/50)

Her total costs are equal to her revenue in the breakeven scenario, so:

150 + 275(x/50) = 1525

Solving for x:
275x/50 = 1375
x = 250*5.5
x = 1375

Therefore, Adrienne produced 1375 boxes of chocolates, which is answer choice D.

Question 15

Table 13-1
Measures of Cost for Splashy Cardboard Kayak Factory. 
-Refer to Table 13-1.What is the variable cost of producing five kayaks?

Accepted Answer

The variable cost per kayak is $3.50. To find the variable cost of producing five kayaks, we multiply the variable cost per kayak by the number of kayaks: $3.50 x 5 = $17.50.

Question 16

If a firm wants to capitalise on economies of scale, it may be able to do so by:

Accepted Answer

Economies of scale are achieved by optimizing production processes to reduce costs per unit as output increases. This can be done through specialization of labor (A), increasing the workforce to boost production capacity (B), and directly increasing the volume of production (C). All these actions contribute to economies of scale.

Question 17

In reference to setting the production level, a firm's cost curves:

Accepted Answer

Cost curves provide important information about a firm's costs at different levels of production, but they do not directly dictate what decisions the firm will make. Other factors such as market demand, competition, and market price will also play a role in the firm's production decisions. Therefore, while cost curves are useful for analyzing a firm's costs, by themselves they do not tell us what decisions the firm will make.

Question 18

Specialisation among workers occurs when:

Accepted Answer

Specialisation among workers occurs when each worker is allowed to perfect one particular task. This means that the worker focuses on one specific task and becomes highly skilled and efficient in performing that task. Option B and C do not necessarily describe specialisation among workers. Option B describes job rotation, where a worker is responsible for a number of different tasks, while option C describes flexibility in task assignments, which allows workers to switch from one task to another.

Question 19

Table 13-1
Measures of Cost for Splashy Cardboard Kayak Factory. 
-Refer to Table 13-1.What is the variable cost of producing zero kayaks?

Accepted Answer

Variable costs are costs that vary with the level of production. Therefore, if no kayaks are produced, there should be no variable costs associated with production.

Question 20

Table 13-1
Measures of Cost for Splashy Cardboard Kayak Factory. 
-Refer to Table 13-1.The marginal cost of producing the sixth kayak is:

Accepted Answer

The answer of Table 13-1
Measures of Cost for Splashy Cardboard...

Quiz 13: The Costs of Production

Economies of scale occur when:

Economies of scale arise when:

Constant returns to scale occur when:

Table 13-1 Measures of Cost for Splashy Cardboard Kayak Factory. -Refer to Table 13-1.The average fixed cost of producing five kayaks is:

Table 13-1 Measures of Cost for Splashy Cardboard Kayak Factory. -Refer to Table 13-1.The average total cost of producing four kayaks is:

Table 13-1 Measures of Cost for Splashy Cardboard Kayak Factory. -Refer to Table 13-1.The average variable cost of producing two kayaks is:

Diseconomies of scale occur when:

A U-shaped long-run average total cost curve can be explained by firms increasing their size to do which of the following? (i) take advantage of greater specialisation (ii) avoid coordination problems (iii) avoid fixed costs

Table 13-1 Measures of Cost for Splashy Cardboard Kayak Factory. -Refer to Table 13-1.What is the marginal cost of producing the first kayak?

Table 13-1 Measures of Cost for Splashy Cardboard Kayak Factory. -Refer to Table 13-1.What is the variable cost of producing five kayaks?

If a firm wants to capitalise on economies of scale, it may be able to do so by:

In reference to setting the production level, a firm's cost curves:

Specialisation among workers occurs when:

Table 13-1 Measures of Cost for Splashy Cardboard Kayak Factory. -Refer to Table 13-1.What is the variable cost of producing zero kayaks?

Table 13-1 Measures of Cost for Splashy Cardboard Kayak Factory. -Refer to Table 13-1.The marginal cost of producing the sixth kayak is: