Question 1

Are diminishing marginal productivity and diseconomies of scale the same thing? Explain why or why not.

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Question 2

The table below contains short run average cost data for five different plant sizes for C3PO Technologies Ltd.
 
a)On the grid in the figure below,graph the short-run average cost curves for the five plants.  
b)What is the right-size of plant for each of the following output levels:2,4,6,8 and 10?
c)Do a sketch of the long-run average cost curve in the graph above.
d)What plant size would C3PO need to use in order to achieve MES?
e)If C3PO is producing an output level of 6 in plant size 4,does excess capacity exist?

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Question 3

State whether each of the following scenarios shows economies of scale or diseconomies of scale.
a)Increase firm size leads to greater problems in communication between the firms major stakeholders.
b)Increase firm size creates coordination problems among departments.
c)Increase firm size leads to greater specialization of management.
d)Increase firm size enables greater division of labour.

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Question 4

Discuss the difference between increasing returns and economies of scale.

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Question 5

Demonstrate graphically and explain verbally the concepts of economies of scale,constant return to scale,and diseconomies of scale.

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Question 6

Suppose the inputs and outputs for Carbon Credits are shown below.
  a)If capital cost $40 per unit and labour costs $12 per unit fill in the blanks in the table above.
b)At what output do increasing returns come to an end?
c)What is the shape of the LRAC curve?
d)Graphically,what would happen to the LRAC curve if the cost of capital dropped to $30 per unit?

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Question 7

The table below shows cost data for three different-sized plants---1,2,and 3---which are the only three plants possible.

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Question 8

Distinguish between technical and pecuniary economies of scale.

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Question 9

Can a firm size be too large?

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Question 10

What is the shape of the LRAC curve for a firm enjoying diseconomies of scale?

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Question 11

What is the likely cause of a firm operating below MES?

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Question 12

"The SRAC and LRAC curves are both typically U-shaped for the same reason." Explain why this statement is incorrect.

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Question 13

State whether each of the following is a short-run or long-run adjustment
a)A firm hires two more workers
b)A firm builds a new plant
c)A pizza parlor decides to add more pepperoni on their signature pizza.
d)A restaurant expands its kitchen

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Question 14

Suppose that Jump A Lot Inc.can produce 20 trampolines a day for a total cost of $2,400.If technology and input prices remain the same and total cost increase to $4,800,what must be the new quantity of output per day under conditions of:
a)constant returns to scale? ______________________
b)economies of scale? ______________________
c)diseconomies of scale ________________________

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Question 15

What is the shape of the LRAC curve for a firm enjoying constant returns to scale?

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Question 16

Suppose prices and technologies are held constant.State whether each of the following scenarios shows increasing returns to scale,constant returns to scale or decreasing returns to scale.
a)Percentage change input is greater than the percentage change in output.
b)Percentage change input is equal to the percentage change in output.
c)Percentage change input is less than the percentage change in output.

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Question 17

The figure below illustrates a series of short-run cost curves numbered AC₁ through AC₄,which correspond to the only four different plant sizes possible. a)What can you say about returns to scale? b)Are economies of scale present? c)If it takes 6 workers and 30 units of capital to produce 10 units of output,how much labour and capital are necessary to produce 20 units of output?

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Question 18

As an employee of the Edge Corporation (a manufacturer of gas powered water pumps)you have been asked to determine the nature of their long-run cost structure.Below is cost data on the economic capacity output for 10 different plant sizes.

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Question 19

Determine whether each of the following is a factor which helps to determine the shape of the short-run average cost curve or the long-run average cost curve.
a)Economies of scale.
b)Diminishing returns.
c)Fixed cost.
d)Decreasing returns to scale.
e)Price of labour.

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Question 20

What factor is important in determining the shape of short run cost curves (marginal cost,average cost)but plays no role in determining the shape of long-run cost curve? What are the most important factors in determining the shape of the long-run cost curve? Explain.

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Quiz 7: Costs in the Long Run