Question 1

Economies of scale occur when

Accepted Answer

Economies of scale occur when the long-run average total costs fall as output increases. This is because when output increases, fixed costs are spread over a larger output, leading to a decrease in average fixed costs. Additionally, larger firms can often negotiate better deals with suppliers and can benefit from more specialized and efficient production processes, leading to a decrease in average variable costs. Overall, this results in a decrease in average total costs, leading to economies of scale.

Question 2

When a firm is experiencing economies of scale,

Accepted Answer

When a firm experiences economies of scale, increasing production leads to a decrease in long-run average total cost, which means the long-run average total cost is greater than the long-run marginal cost.

Question 3

In the long run Firm A incurs total costs of $1,200 when output is 30 units and $1,400 when output is 40 units.Firm A exhibits

Accepted Answer

Economies of scale occur when the average total cost decreases as output increases. In this case, as output increases from 30 to 40 units, the total cost increases from $1,200 to $1,400, but the average total cost decreases from $40 to $35 per unit. This indicates that Firm A is experiencing economies of scale.

Question 4

The most likely explanation for economies of scale is

Accepted Answer

The answer of The most likely explanation for economies of...

Question 5

Constant returns to scale occur when a firm's

Accepted Answer

Constant returns to scale means that as a firm increases its output by a certain percentage, its long-run average total costs will remain constant. This implies that there are no economies or diseconomies of scale, and thus no change in the cost per unit of output as the scale of production increases. Therefore, option D is the correct choice as it states that long-run average total costs do not vary as output increases.

Question 6

When comparing short-run average total cost with long-run average total cost at a given level of output,

Accepted Answer

In the short run, a firm may not be able to adjust all of its inputs or production factors, leading to higher costs per unit of output. In the long run, a firm can adjust all inputs to optimize production and drive down costs, leading to lower average total cost. Therefore, short-run average total cost is typically above long-run average total cost.

Question 7

In the long run Firm A incurs total costs of $1,050 when output is 30 units and $1,200 when output is 40 units.Firm A exhibits

Accepted Answer

Economies of scale occur when average total cost falls as output rises. In this case, Firm A's average total cost decreases from $35/unit (=$1,050/30 units) to $30/unit (=$1,200/40 units) as output increases from 30 to 40 units. This indicates that Firm A is able to achieve cost savings by increasing production, indicating economies of scale.

Question 8

Which of the following explains why long-run average cost at first decreases as output increases?

Accepted Answer

Long-run average cost at first decreases as output increases due to gains from specialization of inputs. As output increases, firms can take advantage of specialization, which allows them to use their resources more efficiently and reduce costs. This results in economies of scale and a decrease in average cost.

Question 9

In the long run,

Accepted Answer

In the long run, all inputs are considered variable, meaning that firms can adjust all factors of production, including those that were fixed in the short run. This allows for changes in production capacity and scale.

Question 10

In the long run,a firm that produces and sells computers gets to choose

Accepted Answer

In the long run, a firm has the flexibility to choose all three options listed (how many workers to hire, the size of its factories, and which short-run average-total-cost curve to use). This is because in the long run, all inputs are variable, allowing the firm to adjust production levels to maximize profits. The firm can choose the optimal combination of inputs to produce their computers efficiently and effectively.

Question 11

If long-run average total cost decreases as the quantity of output increases,the firm is experiencing

Accepted Answer

Economies of scale occur when the long-run average total cost decreases as the quantity of output increases. This could be due to factors such as specialization, bulk purchases of inputs, and efficient use of capital. It is opposite to diseconomies of scale where average total cost increases with the increase in production.

Question 12

Since the 1980s,Wal-Mart stores have appeared in almost every community in America.Wal-Mart buys its goods in large quantities and,therefore,at cheaper prices.Wal-Mart also locates its stores where land prices are low,usually outside of the community business district.Many customers shop at Wal-Mart because of low prices.Local retailers,like the neighborhood drug store,often go out of business because they lose customers.This story demonstrates that

Accepted Answer

The story demonstrates that Wal-Mart benefits from economies of scale in retail sales by buying goods in bulk and selling them at cheaper prices. This leads to the closure of local retailers who cannot compete with Wal-Mart's low prices.

Question 13

Economies of scale occur when a firm's

Accepted Answer

Economies of scale refers to the cost advantages a firm experiences when increasing production. When a firm's long-run average total costs decrease as output increases, it indicates economies of scale. Therefore, choice B is the correct answer.

Question 14

Constant returns to scale occur when the firm's

Accepted Answer

Constant returns to scale means that as a firm increases its output by increasing all of its inputs proportionally, the long-run average total costs remain constant. This is represented by a flat long-run average cost curve. Option B correctly describes this scenario. Option A is incorrect as it only refers to the long-run total costs, not the average. Option C describes economies of scale, where the long-run average cost curve is falling as output increases. Option D describes diseconomies of scale, where the long-run average cost curve is rising as output increases.

Question 15

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

Accepted Answer

By assigning limited tasks to employees, they can become more efficient and productive, which can contribute to economies of scale by reducing costs per unit as production increases.

Question 16

The total cost to the firm of producing zero units of output is

Accepted Answer

The answer of The total cost to the firm of...

Question 17

When a firm experiences constant returns to scale,

Accepted Answer

Constant returns to scale means that as the firm increases its output by the same proportion, the cost of production stays constant. Thus, long-run average total cost (LRATC) remains unchanged regardless of output levels. Therefore, option A is the correct answer. B and C are incorrect because constant returns to scale implies that LRMC equals LRATC, not greater or less than it. Option D is also incorrect since coordination problems are not related to the concept of constant returns to scale.

Question 18

The long-run average total cost curve is always

Accepted Answer

The answer of The long-run average total cost curve is...

Question 19

Economies of scale arise when

Accepted Answer

Economies of scale occur when there are cost advantages from producing at a larger scale. One way this is achieved is through specialization, where workers can become more efficient and productive when they focus on producing a particular good or service. Therefore, choice D is the best answer.

Question 20

In the short run,a firm that produces and sells computers can adjust

Accepted Answer

In the short run, a firm can adjust its variable inputs such as labor, but it cannot change its fixed inputs such as its factories. The location of production along its long-run average-total-cost curve cannot be adjusted in the short run. Therefore, only option A is correct.

Quiz 13: The Costs of Production