Question 1

Learning by doing will result in

Accepted Answer

Learning by doing involves gaining experience and improving efficiency in production processes, resulting in lower long-run average costs compared to short-run average costs.

Question 2

Suppose capital and labor are perfect substitutes resulting in a production function of q = K + L.That is,the isoquants are straight lines with a slope of -1.Derive the long-run total cost function TC = C(q)when the wage rate is w and the rental rate on capital is r.

Accepted Answer

The answer of Suppose capital and labor are perfect substitutes...

Question 3

The total cost of producing one unit is $50.The total cost of producing two units is $75.At a production level of two units,the cost function exhibits

Accepted Answer

The cost of producing one unit is $50, and the cost of producing two units is $75, indicating that the cost per unit decreases as the quantity produced increases. This is a characteristic of economies of scale.

Question 4

A firm pays $5 for each unit of capital.Labor costs $5 per hour for the first 10 hours and $10 per hour for every hour thereafter.Draw the isocost curves for total costs of $50 and $100.

Accepted Answer

The answer of A firm pays $5 for each unit...

Question 5

Why do many people choose to not read the manuals included with their new computer?

Accepted Answer

The answer of Why do many people choose to not...

Question 6

Learning by doing,which leads to lower costs in the long run,is often

Accepted Answer

Learning by doing refers to the idea that as a firm produces more output, it becomes more efficient and effective at producing that output. This is often seen in economies of scale where larger productions lead to lower costs. Therefore, choice (B) is correct as it directly mentions cumulative output, which is a key factor in learning by doing. Choice (A) may lead to improved efficiency through better machinery, but it does not necessarily lead to learning by doing. Choice (C) may improve the production process, but it does not directly relate to learning by doing. Choice (D) is incorrect as learning by doing is important for most firms to remain competitive and profitable in the long run.

Question 7

"If the wage rate paid to one form of labor is twice the cost of another form of labor,the first type of labor must be twice as productive." Comment.

Accepted Answer

The answer of "If the wage rate paid to one...

Question 8

Explain how a firm can have constant returns to scale in production and economies of scale in cost.

Accepted Answer

The answer of Explain how a firm can have constant...

Question 9

Economies of scope exist between book publishing and magazine publishing if

Accepted Answer

Economies of scope occur when producing two products together (like books and magazines) is cheaper for a company than producing them separately. Choice A correctly reflects this concept, as it suggests that book publishers can produce magazines at a lower cost, likely due to shared resources, skills, or technologies.

Question 10

If increasing returns to scale are present,the long-run average cost increases as more output is produced.

Accepted Answer

Increasing returns to scale imply that with a doubling of inputs,output more than doubles.Since average cost is the ratio of total cost divided by output,this increase in inputs will cause the numerator to be just double the old value while the new denominator is more than double the old value.As a result,long-run average cost falls as more output is produced.

Question 11

Travel websites such as Travelocity tend to offer reservation services for multiple travel modes.This is because

Accepted Answer

Economies of scope occur when a firm can use its resources and capabilities to produce multiple products or services, resulting in lower costs and increased efficiencies. Once a travel website has the technology and infrastructure to offer airline reservations, it can apply that same technology and infrastructure to offer reservations for other travel modes, like railroads or hotels. This allows the firm to spread fixed costs across multiple products and services, resulting in lower overall costs and increased profitability.

Question 12

What are the functions for MC and AC if TC = 100q + 100  ? Are the returns to scale increasing,decreasing,or constant?

Accepted Answer

The answer of What are the functions for MC and...

Question 13

Suppose the cost of producing two goods,x and y,can be represented as C = ax + by + cxy.If there are diseconomies of scope,then which of the following must be true?

Accepted Answer

The answer of Suppose the cost of producing two goods,x...

Question 14

Long-run average cost is never greater than short-run average cost because in the long run

Accepted Answer

In the long run, a firm has more flexibility to adjust its inputs, including capital, labor, materials, and technology. This means that the firm can choose the most cost-efficient combination of inputs to produce a given level of output, which allows it to move to the lowest possible isocost curve. This in turn leads to a lower average cost of production in the long run compared to the short run, where some inputs are fixed and cannot be adjusted. Therefore, the statement that long-run average cost is never greater than short-run average cost is true.

Question 15

Economies of scale and Increasing Returns to Scale are the same thing looked at from either the production or cost perspective.

Accepted Answer

Increasing returns to scale imply economies of scale but the reverse is not True
A firm can experience economies of scale for other reasons (without increasing returns to scale)

Question 16

Suppose the cost of producing two goods,x and y,can be represented as C = ax + by + cxy.If there are economies of scope,then which of the following must be true?

Accepted Answer

If there are economies of scope, then it means that the cost of producing both goods together (C) is less than the sum of costs of producing each good individually (ax+by). 
This implies that the interaction term (cxy) results in cost savings. Since the only option that includes a negative value for c is D, D must be the correct answer.

Question 17

Learning by doing is represented by

Accepted Answer

Learning by doing typically results in a decrease in the average total cost curve as workers become more efficient and processes are improved over time, leading to lower costs per unit of output.

Quiz 6: Costs