Question 1

When a firm is experiencing diseconomies of scale
A) the MP curve has a negative slope.
B) the LRAC curve has a positive slope.
C) it must also experience diminishing returns to labor.
D) the MC curve has a negative slope.

Accepted Answer

Diseconomies of scale occur when a firm's long-run average cost (LRAC) curve has a positive slope, which means that as the firm increases its production, its costs increase at a faster rate than its output. This could be due to a variety of factors such as difficulty managing a larger workforce or higher transportation costs for larger quantities of input materials. The other answer choices are incorrect as they do not directly relate to the concept of diseconomies of scale.

Question 2

Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content. Rogue can produce 15 chocolate bars per day with one employee, 35 with 2, 50 with 3 and 55 with 4 employees. Which statement is TRUE?
A) Rogue's marginal product curve initially increases and then decreases.
B) Rogue's marginal product curve decreases continually.
C) Rogue's total product curve increases at an increasing rate.
D) Rogue's marginal product curve decreases initially and then increases.

Accepted Answer

The marginal product curve initially increases as more employees are added and more chocolate bars are produced, but it eventually decreases as diminishing returns set in.

Question 3

Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content. The price of cocoa beans shot up 44 percent in 2008. How did this affect Rogue's short run costs?
A) Short run variable costs would increase.
B) Short run fixed costs would decrease.
C) Short run total costs would decrease.
D) Short run average fixed costs would increase.

Accepted Answer

Since cocoa beans are an important input for Rogue Chocolatier, their price increase will cause an increase in the cost of producing chocolate bars. This increase in input cost will directly impact short run variable costs.

Question 4

Angel Rodriguez pulls up in his 24-foot panel truck in front of Sezz Medi Brick Oven Pizza in Upper Manhattan. Even though it's the middle of the summer, he's delivering- firewood. He says even though fuel costs have doubled in the past year, it's still worth the premium he gets delivering ash and cherry to the captive and growing market in NYC. How would a decrease in gasoline prices affect Angel's short run costs?
A) Short run total costs would decrease.
B) Short run variable costs would increase.
C) Short run fixed costs would decrease.
D) Short run average variable costs would increase.

Accepted Answer

A decrease in gasoline prices would lower Angel's transportation costs, resulting in a decrease in his short run total costs.

Question 5

Angel Rodriguez pulls up in his 24-foot panel truck in front of Sezz Medi Brick Oven Pizza in Upper Manhattan. Even though it's the middle of the summer, he's delivering- firewood. He says even though fuel costs have doubled in the past year, it's still worth the premium he gets delivering ash and cherry to the captive and growing market in NYC. How does the doubling of fuel costs affect Angel's short run costs?
A) Short run variable costs would increase.
B) Short run fixed costs would decrease.
C) Short run total costs would decrease.
D) Short run average fixed costs would increase.

Accepted Answer

The doubling of fuel costs would increase Angel's transportation costs, which are a variable cost in the short run. Therefore, short run variable costs would increase.

Question 6

Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content. Most chocolate companies use already processed chocolate to craft their sweets. But Rogue buys raw cocoa beans, and roasts and grinds them until they're in a liquid state and then runs the chocolate through a big squat machine with rollers. Which statement is TRUE for Rogue?
A) Raw cocoa beans are a variable factor of production and the machine is a fixed factor of production.
B) Both processed chocolate and raw cocoa beans are variable factors of production.
C) Processed chocolate is a variable factor of production and the machine is a fixed factor of production.
D) Processed chocolate and raw cocoa beans are variable factors of production and the machine is a fixed factor of production.

Accepted Answer

The answer of Minneapolis business Rogue Chocolatier sells specialty chocolate...

Question 7

In 2008, Precision Pattern Interiors, which makes high-end aircraft interiors, began a $1 million renovation of a building at the Hutchinson Air Base Industrial Tract south of Yoder, Kansas. The company will also add some $400,000 in new equipment and triple its Yoder work force. Why would the long run decisions be riskier than the short run decisions?
A) because the firm has to live with the long run decisions for a long time
B) because it is easier to sell the equipment than it is to lay off employees
C) because the firm has to raise prices to purchase equipment
D) because employees will be upset

Accepted Answer

Long run decisions have long-term consequences, which means the company must live with those decisions for a prolonged period. Any mistakes or inefficiencies will have a more significant impact on the company's profitability and sustainability in the long run, making such decisions riskier than short-term ones.

Question 8

Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content. If Rogue's average total cost decreases as the business increases plant size, then Rogue experiences
A) economies of scale.
B) diseconomies of scale.
C) diminishing marginal returns.
D) constant returns to scale.

Accepted Answer

When a business experiences a decrease in average total cost as it increases plant size, it is experiencing economies of scale. This means that the business is benefiting from cost advantages of producing at a larger scale, such as spreading fixed costs over a greater output or being able to negotiate lower prices for raw materials.

Question 9

Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content. Rogue can produce 15 chocolate bars per day with one employee, 29 with 2, 35 with 3 and 40 with 4 employees. Which statement is TRUE?
A) Rogue's marginal product curve decreases continually.
B) Rogue's marginal product curve initially increases and then decreases.
C) Rogue's total product curve increases at an increasing rate.
D) Rogue's marginal product curve decreases initially and then increases.

Accepted Answer

The answer of Minneapolis business Rogue Chocolatier sells specialty chocolate...

Question 10

Angel Rodriguez pulls up in his 24-foot panel truck in front of Sezz Medi Brick Oven Pizza in Upper Manhattan. Even though it's the middle of the summer, he's delivering- firewood. He says even though fuel costs have doubled in the past year, it's still worth the premium he gets delivering ash and cherry to the captive and growing market in NYC. Which of the following statements is TRUE about short run costs for Angel?
A) His truck is a fixed cost and gasoline is a variable cost.
B) His truck is a variable cost and gasoline is a fixed cost.
C) Both his truck and gasoline is a variable cost.
D) Neither his truck nor gasoline is a variable cost.

Accepted Answer

The answer of Angel Rodriguez pulls up in his 24-foot...

Question 11

For the past 15 years the American public has wanted to buy big trucks. The Big Three automakers delivered, investing billions in plants that build gas guzzlers. Now, when customers walk into showrooms, gas mileage is on their mind. Retooling the industry will take years, so in the meantime GM, Ford and Chrysler are tweaking their existing models. They're changing tires, adjusting transmissions and exhaust valves in hopes of getting one or maybe two more miles per gallon. Which of the decisions by the Big Three to gain gas mileage is a short run decision?
A) adjusting exhaust valves
B) adjusting transmissions
C) changing tires
D) All of these decisions are short run decisions.

Accepted Answer

All of these decisions are short run decisions, as they involve making small adjustments to existing models in order to improve gas mileage without requiring a complete overhaul of the production process. These changes may yield small improvements in gas mileage, but they are not a long-term solution to the industry's need to shift away from gas-guzzling trucks and towards more fuel-efficient vehicles.

Question 12

For the past 15 years the American public has wanted to buy big trucks. The Big Three automakers delivered, investing billions in plants that build gas guzzlers. Now, when customers walk into showrooms, gas mileage is on their mind. Retooling the industry will take years. Mike Quincy says the industry is "like a huge aircraft carrier. It doesn't stop on a dime. It doesn't turn on a dime." What does Mike mean?
A) The decision time frame to enter into the long run is very long in this industry.
B) The industry has increasing returns to scale.
C) Short run decisions are easily reversed.
D) The industry experiences diminishing marginal returns.

Accepted Answer

Mike Quincy's analogy of the industry being like a huge aircraft carrier means that it is a slow-moving and difficult-to-change industry, much like an aircraft carrier takes time and effort to make course corrections. Therefore, it takes years to retool the industry, implying that the decision time frame to enter into the long run is very long.

Question 13

In 2008, Precision Pattern Interiors, which makes high-end aircraft interiors, began a $1 million renovation of a building at the Hutchinson Air Base Industrial Tract south of Yoder, Kansas. The company will also add some $400,000 in new equipment and triple its Yoder work force. Which of Precision Pattern Interiors' decisions is a short run decision?
A) triple its Yoder work force
B) $1 million renovation of a building at the Hutchinson Air Base Industrial Tract
C) $400,000 in new equipment purchases
D) All of these decisions are short run decisions.

Accepted Answer

Increasing the workforce is a short-run decision because it involves adjusting variable inputs, while renovations and equipment purchases are long-term investments.

Question 14

Health care costs rose more than 10 percent in 2011, according to a survey of insurers by Aon Consulting Worldwide. Which of the following would be a variable cost in a hospital?
A) nurses
B) An MRI machine
C) laboratory equipment
D) gurneys

Accepted Answer

The answer of Health care costs rose more than 10...

Question 15

Health care costs rose more than 10 percent in 2011, according to a survey of insurers by Aon Consulting Worldwide. If the increase in costs solely comes from increased prices for MRI and X-ray machines, then for the health care industry
A) fixed costs are increasing.
B) long run average total cost is decreasing.
C) productivity is increasing.
D) variable costs are increasing.

Accepted Answer

If the increase in costs is solely due to increased prices for MRI and X-ray machines, then fixed costs are increasing. This is because fixed costs are those costs that do not vary with the level of output, and the cost of purchasing and maintaining machines is considered a fixed cost. Therefore, an increase in the prices of the machines will lead to an increase in fixed costs for the health care industry.

Question 16

What is the difference between the short run and the long run?

Accepted Answer

The answer of What is the difference between the short...

Question 17

Health care costs rose more than 10 percent in 2011, according to a survey of insurers by Aon Consulting Worldwide. Which of the following would be a fixed cost in a hospital?
A) an MRI machine
B) bandages
C) nurses
D) syringes

Accepted Answer

An MRI machine would be considered a fixed cost in a hospital, as it is a high-cost capital expense that is not consumed or used up with each patient visit. Bandages, nurses, and syringes are all variable costs, as they are items that are used up or paid on an as-needed basis for each patient.

Question 18

Angel Rodriguez pulls up in his 24-foot panel truck in front of Sezz Medi Brick Oven Pizza in Upper Manhattan. Even though it's the middle of the summer, he's delivering- firewood. He says even though fuel costs have doubled in the past year, it's still worth the premium he gets delivering ash and cherry to the captive and growing market in NYC. How would an increase in Angel's salary affect short run costs?
A) Short run variable costs would increase.
B) Short run fixed costs would decrease.
C) Short run total costs would decrease.
D) Short run average fixed costs would increase.

Accepted Answer

An increase in Angel's salary would be considered a variable cost, meaning it would increase short run variable costs. Fixed costs would not be affected, and increasing variable costs would lead to an overall increase in total costs. Average fixed costs would not be affected by a change in Angel's salary.

Question 19

Health care costs rose more than 10 percent in 2011, according to a survey of insurers by Aon Consulting Worldwide. If the increase in costs solely comes from increased wages to nurses and doctors, then for the health care industry
A) variable costs are increasing.
B) fixed costs are increasing.
C) long run average total cost is decreasing.
D) productivity is increasing.

Accepted Answer

When increased costs come from increased wages to nurses and doctors, it indicates an increase in variable costs as labor costs are a variable cost for the health care industry. This may lead to an increase in overall costs and may require adjustments in pricing to maintain profitability.

Question 20

In 2008, Precision Pattern Interiors, which makes high-end aircraft interiors, began a $1 million renovation of a building at the Hutchinson Air Base Industrial Tract south of Yoder, Kansas. The company will also add some $400,000 in new equipment and triple its Yoder work force. Which of Precision Pattern Interiors' decisions is a long run decision?
A) $1 million renovation of a building at the Hutchinson Air Base Industrial Tract and $400,000 in new equipment purchases
B) $1 million renovation of a building at the Hutchinson Air Base Industrial Tract
C) $400,000 in new equipment purchases
D) triple its Yoder work force

Accepted Answer

The $1 million renovation of a building at the Hutchinson Air Base Industrial Tract and $400,000 in new equipment purchases are long-run decisions because they will have a long-term impact on the company's operations.

Quiz 11: Output and Costs

When a firm is experiencing diseconomies of scale

Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content. Rogue can produce 15 chocolate bars per day with one employee, 35 with 2, 50 with 3 and 55 with 4 employees. Which statement is TRUE?

Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content. The price of cocoa beans shot up 44 percent in 2008. How did this affect Rogue's short run costs?

Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content. If Rogue's average total cost decreases as the business increases plant size, then Rogue experiences

Minneapolis business Rogue Chocolatier sells specialty chocolate bars with a high cocoa content. Rogue can produce 15 chocolate bars per day with one employee, 29 with 2, 35 with 3 and 40 with 4 employees. Which statement is TRUE?

Health care costs rose more than 10 percent in 2011, according to a survey of insurers by Aon Consulting Worldwide. Which of the following would be a variable cost in a hospital?

Health care costs rose more than 10 percent in 2011, according to a survey of insurers by Aon Consulting Worldwide. If the increase in costs solely comes from increased prices for MRI and X-ray machines, then for the health care industry

What is the difference between the short run and the long run?

Health care costs rose more than 10 percent in 2011, according to a survey of insurers by Aon Consulting Worldwide. Which of the following would be a fixed cost in a hospital?

Health care costs rose more than 10 percent in 2011, according to a survey of insurers by Aon Consulting Worldwide. If the increase in costs solely comes from increased wages to nurses and doctors, then for the health care industry