Question 1

What are some examples of economies of scale and diseconomies of scale?

Accepted Answer

The answer of What are some examples of economies of...

Question 2

What causes short-run average variable cost to decrease and then increase as output increases, and why does the difference between short-run average variable cost and average total cost get smaller as output increases?

Accepted Answer

The answer of What causes short-run average variable cost to...

Question 3

How does average fixed cost change as the level of output increases, and how does this affect the relationship between average variable cost and average total cost as output increases?

Accepted Answer

The answer of How does average fixed cost change as...

Question 4

Which economist coined the term creative destruction?

Accepted Answer

Joseph Schumpeter coined the term "creative destruction" to describe the process of transformation that accompanies radical innovation in an economy.

Question 5

The most efficient method of production for a firm is:

Accepted Answer

The least-cost method of production is considered the most efficient because it maximizes the use of resources at the lowest possible cost, thereby optimizing production efficiency and profitability.

Question 6

In the short run, as a firm increases its output, some costs do not change. These costs are called:

Accepted Answer

Fixed costs do not change with the level of output in the short run. Examples include rent, salaries of permanent staff, and insurance. Variable costs, on the other hand, change with the level of production, such as raw materials and direct labor costs.

Question 7

In the long run,:

Accepted Answer

In the long run, all inputs can be varied, including building size and number of plants, allowing firms to adjust all aspects of production to achieve desired output levels.

Question 8

In the short run, as a firm increases its output, it hires more workers. This labor cost would be a:

Accepted Answer

Variable cost changes with the level of output, and hiring more workers as output increases means the cost of labor varies with production, making it a variable cost.

Question 9

Total variable costs:

Accepted Answer

Total variable costs increase as output increases because they are directly related to the level of production. The more units produced, the higher the variable costs, as these costs vary with production volume.

Question 10

Short-run costs behave as they do because of:

Accepted Answer

The Law of Diminishing Returns explains why short-run costs increase after a certain point as more units of a variable input are added to a fixed input, leading to less efficient production and higher costs per unit.

Question 11

The total cost of producing 9 units is $185 and the average total cost for producing 10 units is $20. The marginal cost of producing the 10th unit is:

Accepted Answer

Total cost for 10 units = $200 [$20(ATC) x 10 units] Total cost for 9 units = $185 Marginal cost = $200 - $185

Question 12

The total variable cost and total cost of producing 800 units of output is $2,400 and $3,000, respectively. What is the total fixed cost?

Accepted Answer

Total fixed cost is calculated by subtracting total variable cost from total cost. So, $3,000 - $2,400 = $600.

Question 13

The firm produced 100 units of output at $60. What is the cost per unit of output?

Accepted Answer

The cost per unit of output is calculated by dividing the total cost by the number of units produced. Therefore, $60 divided by 100 units equals $0.60 per unit.

Question 14

When marginal cost is below average total cost,

Accepted Answer

When marginal cost is below average total cost, it means that the cost of producing one more unit is less than the average cost of production so far. This situation leads to a decrease in the average total cost, as the addition of a lower-cost unit pulls the average down.

Question 15

Suppose that a restaurant experiences diminishing returns to cooks. If hiring the second cook added 4 additional meals per hour, then hiring the third cook will:

Accepted Answer

The concept of diminishing returns implies that as more units of a variable input (in this case, cooks) are added to a fixed input (the kitchen), the additional output (meals prepared) generated by each new unit of input will eventually decrease. Therefore, if the second cook added 4 additional meals per hour, hiring the third cook will add less than 4 additional meals per hour due to the diminishing returns.

Question 16

A firm may experience economies of scale because it is able:

Accepted Answer

Economies of scale occur when a firm's costs per unit decrease as output increases. This can happen through specialization of labor (A), bulk purchasing discounts (B), and investments in efficient technology (C). Therefore, a firm may experience economies of scale through any or all of these methods.

Question 17

The production time frame in which some factors of production are variable in amount and some are fixed is referred to as the long run.

Accepted Answer

It is the short run.

Question 18

The change in total cost when one more unit of output is produced is called marginal cost.

Accepted Answer

Marginal cost is defined as the change in total cost that arises when the quantity produced is incremented by one unit; it is the cost of producing one more unit of a good.

Question 19

If increasing output in the long run causes per unit costs to increase, then the firm is experiencing economies of scale.

Accepted Answer

The firm is experiencing diseconomies of scale.

Question 20

Average total cost is equal to total cost divided by output.

Accepted Answer

Average total cost is calculated by dividing the total cost by the quantity of output produced.

Quiz 12: Production and the Costs of Production