Question 1

The Big Blue Sky jet company has long-run total costs of $20 million if it produces 5 jets and long-run total costs of $24 million if it produces 6 jets. The Big Blue Sky jet company is experiencing
A) economies of scale.
B) constant returns to scale.
C) diseconomies of scale.
D) negative profits.

Accepted Answer

The answer of The Big Blue Sky jet company has...

Question 2

At low levels of production, the firm
A) benefits from increased size because it can take advantage of greater specialization.
B) has the potential for economies of scale.
C) is unlikely to experiences acute problems with coordination.
D) All of the above are correct.

Accepted Answer

The answer of At low levels of production, the firm
A)...

Question 3

Diseconomies of scale occur when a firm's
A) marginal costs are constant as output increases.
B) long-run average total costs are decreasing as output increases.
C) long-run average total costs are increasing as output increases.
D) marginal costs are equal to average total costs for all levels of output.

Accepted Answer

Diseconomies of scale occur when a firm's long-run average total costs are increasing as output increases, meaning that the cost per unit of production is rising due to larger scale operations. This may be caused by factors such as inefficient communication, bureaucracy, and difficulties in managing larger workforce.

Question 4

Diseconomies of scale occur when
A) average fixed costs are falling.
B) average fixed costs are constant.
C) long-run average total costs rise as output increases.
D) long-run average total costs fall as output increases.

Accepted Answer

Diseconomies of scale occur when long-run average total costs rise as output increases. This can happen due to factors such as managerial inefficiencies or difficulties in coordinating and controlling a larger workforce.

Question 5

When a firm's long­run average total costs do not vary as output increases, the firm exhibits
A) economies of scale.
B) constant returns to scale.
C) diseconomies of scale.
D) an efficient use of resources.

Accepted Answer

When a firm exhibits constant returns to scale, it means that as the level of inputs is increased, output increases in the same proportion, and the long-run average total costs remain constant. This indicates that the firm is operating at an efficient scale, where the benefits of scale have been fully utilized without incurring any additional costs.

Question 6

Constant returns to scale occur when a firm's
A) marginal costs are constant as output increases.
B) long-run average total costs are decreasing as output increases.
C) long-run average total costs are increasing as output increases.
D) long-run average total costs do not vary as output increases.

Accepted Answer

Constant returns to scale means that the firm's long-run average total costs do not vary as output increases. This means that if the firm doubles its inputs (capital and labor), output will also double, and the cost per unit of output will remain the same. This implies that the firm is operating at the minimum efficient scale and has achieved the optimal scale of production.

Question 7

When a firm experiences constant returns to scale,
A) long-run average total cost is unchanged, even when output increases.
B) long-run marginal cost is greater than long-run average total cost.
C) long-run marginal cost is less than long-run average total cost.
D) the firm is likely to experience coordination problems.

Accepted Answer

Constant returns to scale mean that as the firm increases its scale of production, both inputs and outputs increase at the same rate. This means that long-run average total cost remains constant even as output increases.

Question 8

In the long run a company that produces and sells dog beds incurs total costs of $1,200 when output is 30 beds and $1,600 when output is 40 beds. Firm A exhibits
A) diseconomies of scale because total cost is rising as output rises.
B) constant returns to scale because average total cost is constant as output rises.
C) diseconomies of scale because average total cost is rising as output rises.
D) economies of scale because average total cost is falling as output rises.

Accepted Answer

The answer of In the long run a company that...

Question 9

When a firm experiences diseconomies of scale,
A) short-run average total cost is minimized.
B) long-run average total cost is minimized.
C) long-run average total cost increases as output increases.
D) long-run average total cost decreases as output increases.

Accepted Answer

Diseconomies of scale occur when a firm's long-run average total cost increases as its output increases. This can be due to various factors such as a lack of coordination within the firm, difficulties in managing larger workforces, or increased costs of raw materials as demand for them increases. As a result, the firm may experience diminishing returns to scale and higher costs per unit of output.

Question 10

In the long run, when marginal cost is above average total cost, the average total cost curve exhibits
A) economies of scale.
B) diseconomies of scale.
C) constant returns to scale.
D) efficient scale.

Accepted Answer

When marginal cost is above average total cost, it indicates that the company is experiencing diminishing returns and increasing production causes the average total cost to increase. This means that the average total cost curve exhibits diseconomies of scale.

Question 11

Firms may experience diseconomies of scale when
A) they are too small to take advantage of specialization.
B) large management structures are bureaucratic and inefficient.
C) there are too few employees, and managers do not have enough to do.
D) average fixed costs begin to rise again.

Accepted Answer

Diseconomies of scale occur when a firm grows so large that its costs per unit increase. This often happens due to bureaucratic inefficiencies in large management structures, where decision-making becomes slower and more complex.

Question 12

In the long run a company that produces and sells covers for cell phones incurs total costs of $2,500 when output is 1,250 covers and $4,000 when output is 1,500 covers. For this range of output, the cell phone cover company exhibits
A) economies of scale.
B) constant returns to scale.
C) diseconomies of scale.
D) efficient scale.

Accepted Answer

The total cost increased as the output increased, indicating that the company is experiencing diseconomies of scale. This means that as the company produces more units, the cost per unit increases, which is not desirable for the company.

Question 13

In the long run the local coffee shop incurs total costs of $625 when output is 1,250 cups of coffee and $750 when output is 1,500 cups of coffee. For this range of output, the coffee shop exhibits
A) economies of scale.
B) constant returns to scale.
C) diseconomies of scale.
D) efficient scale.

Accepted Answer

The answer of In the long run the local coffee...

Question 14

In the long run a company that produces and sells kayaks incurs total costs of $15,000 when output is 30 kayaks and $20,000 when output is 40 kayaks. The kayak company exhibits
A) diseconomies of scale because total cost is rising as output rises.
B) constant returns to scale because average total cost is constant as output rises.
C) diseconomies of scale because average total cost is rising as output rises.
D) economies of scale because average total cost is falling as output rises.

Accepted Answer

The answer of In the long run a company that...

Question 15

When a firm is experiencing diseconomies of scale, long-run
A) average total cost is minimized.
B) average total cost is greater than long-run marginal cost.
C) average total cost is less than long-run marginal cost.
D) marginal cost is minimized.

Accepted Answer

The answer of When a firm is experiencing diseconomies of...

Question 16

Suppose that a firm's long­run average total costs of producing an individual income tax return is $75 when it produces 1,000 returns and $75 when it produces 1,200 returns. For this range of output, the firm is experiencing
A) economies of scale.
B) constant returns to scale.
C) diseconomies of scale.
D) specialization.

Accepted Answer

The fact that the long-run average total cost remains constant at $75 when the firm increases output from 1,000 to 1,200 suggests that the firm is experiencing constant returns to scale. This means that the firm's cost per unit of output remains the same even as it expands production. There are no indications of economies or diseconomies of scale in this range of output.

Question 17

Constant returns to scale occur when the firm's long­run
A) total costs are constant as output increases.
B) average total costs are constant as output increases.
C) average cost curve is falling as output increases.
D) average cost curve is rising as output increases.

Accepted Answer

Constant returns to scale occur when the firm's average total costs remain constant as output increases.

Question 18

In the long run a company that produces and sells laundry detergent incurs total costs of $2,500 when output is 1,250 units and $2,750 when output is 1,500 units. For this range of output, the laundry detergent company exhibits
A) economies of scale.
B) constant returns to scale.
C) diseconomies of scale.
D) efficient scale.

Accepted Answer

The answer of In the long run a company that...

Question 19

If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would
A) slope downward.
B) be horizontal.
C) slope upward.
D) slope downward for low output levels and upward for high output levels.

Accepted Answer

When a firm experiences constant returns to scale at all output levels, it means that doubling the inputs will lead to an exact doubling of outputs. As a result, the long-run average total cost curve will be a horizontal line because the cost per unit of output remains constant.

Question 20

Which of the following statements is not correct?
A) In the long run, there are no fixed costs.
B) Marginal cost is independent of fixed costs.
C) Economies of scale is a short-run concept.
D) Diminishing marginal product explains increasing marginal cost.

Accepted Answer

Economies of scale is a long-run concept, as it refers to the reduction in average cost that occurs as a company increases its scale of production over a longer period of time.

Quiz 13: The Costs of Production

The Big Blue Sky jet company has long-run total costs of $20 million if it produces 5 jets and long-run total costs of $24 million if it produces 6 jets. The Big Blue Sky jet company is experiencing

At low levels of production, the firm

Diseconomies of scale occur when a firm's

Diseconomies of scale occur when

When a firm's longrun average total costs do not vary as output increases, the firm exhibits

Constant returns to scale occur when a firm's

When a firm experiences constant returns to scale,

In the long run a company that produces and sells dog beds incurs total costs of $1,200 when output is 30 beds and $1,600 when output is 40 beds. Firm A exhibits

When a firm experiences diseconomies of scale,

In the long run, when marginal cost is above average total cost, the average total cost curve exhibits

Firms may experience diseconomies of scale when

In the long run a company that produces and sells covers for cell phones incurs total costs of $2,500 when output is 1,250 covers and $4,000 when output is 1,500 covers. For this range of output, the cell phone cover company exhibits

In the long run the local coffee shop incurs total costs of $625 when output is 1,250 cups of coffee and $750 when output is 1,500 cups of coffee. For this range of output, the coffee shop exhibits

In the long run a company that produces and sells kayaks incurs total costs of $15,000 when output is 30 kayaks and $20,000 when output is 40 kayaks. The kayak company exhibits

When a firm is experiencing diseconomies of scale, long-run

Suppose that a firm's longrun average total costs of producing an individual income tax return is $75 when it produces 1,000 returns and $75 when it produces 1,200 returns. For this range of output, the firm is experiencing

Constant returns to scale occur when the firm's longrun

In the long run a company that produces and sells laundry detergent incurs total costs of $2,500 when output is 1,250 units and $2,750 when output is 1,500 units. For this range of output, the laundry detergent company exhibits

If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would

Which of the following statements is not correct?

Quiz 13: The Costs of Production

The Big Blue Sky jet company has long-run total costs of $20 million if it produces 5 jets and long-run total costs of $24 million if it produces 6 jets. The Big Blue Sky jet company is experiencing

At low levels of production, the firm

Diseconomies of scale occur when a firm's

Diseconomies of scale occur when

When a firm's long­run average total costs do not vary as output increases, the firm exhibits

Constant returns to scale occur when a firm's

When a firm experiences constant returns to scale,

In the long run a company that produces and sells dog beds incurs total costs of $1,200 when output is 30 beds and $1,600 when output is 40 beds. Firm A exhibits

When a firm experiences diseconomies of scale,

In the long run, when marginal cost is above average total cost, the average total cost curve exhibits

Firms may experience diseconomies of scale when

In the long run a company that produces and sells covers for cell phones incurs total costs of $2,500 when output is 1,250 covers and $4,000 when output is 1,500 covers. For this range of output, the cell phone cover company exhibits

In the long run the local coffee shop incurs total costs of $625 when output is 1,250 cups of coffee and $750 when output is 1,500 cups of coffee. For this range of output, the coffee shop exhibits

In the long run a company that produces and sells kayaks incurs total costs of $15,000 when output is 30 kayaks and $20,000 when output is 40 kayaks. The kayak company exhibits

When a firm is experiencing diseconomies of scale, long-run

Suppose that a firm's long­run average total costs of producing an individual income tax return is $75 when it produces 1,000 returns and $75 when it produces 1,200 returns. For this range of output, the firm is experiencing

Constant returns to scale occur when the firm's long­run

In the long run a company that produces and sells laundry detergent incurs total costs of $2,500 when output is 1,250 units and $2,750 when output is 1,500 units. For this range of output, the laundry detergent company exhibits

If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would

Which of the following statements is not correct?

When a firm's longrun average total costs do not vary as output increases, the firm exhibits

Suppose that a firm's longrun average total costs of producing an individual income tax return is $75 when it produces 1,000 returns and $75 when it produces 1,200 returns. For this range of output, the firm is experiencing

Constant returns to scale occur when the firm's longrun