Question 1

-The firm depicted in Figure 7-10 currently is producing 200 units of output per day.If it decides to increase its output level to 375 units,then it will
A) adjust from point F to point G in the short run
B) be unable to adjust to point G in the short run because some inputs are fixed
C) be unable to adjust to point G in the long run because some are fixed
D) be unable to adjust to point H in the short run because some inputs are fixed
E) adjust from point F to point H in the long run

Accepted Answer

The answer of 
-The firm depicted in Figure 7-10 currently...

Question 2

If minimum efficient scale is small relative to the maximum potential market,
A) relatively large firms will have a cost advantage over relatively small firms
B) the market price will be low
C) relatively small firms will have a cost advantage over relatively large firms
D) the market price will be high
E) only one firm will survive in the long run.

Accepted Answer

If minimum efficient scale is small relative to the maximum potential market, then relatively small firms will have a cost advantage over relatively large firms. This is because small firms can achieve economies of scale while still remaining relatively small in size, while large firms may experience diseconomies of scale due to their size. Therefore, small firms will be able to produce goods at a lower cost than large firms and can compete effectively in the market.

Question 3

A firm's minimum efficient scale is defined as
A) the output level at which LRATC first reaches its minimum level
B) any output level at which LRATC is minimized
C) the highest output level at which LRATC takes on its minimum value
D) the output level at which the firm charges its highest price
E) the lowest output level at which the firm can charge a positive price

Accepted Answer

The minimum efficient scale is the output level at which LRATC (long-run average total cost) first reaches its minimum level, meaning the firm can produce at the lowest possible cost per unit.

Question 4

When long-run average total cost increases as output increases,a firm experiences
A) diseconomies of scale
B) economies of scale
C) constant returns to scale
D) decreasing marginal cost
E) greater total cost in the long run than in the short run

Accepted Answer

When long-run average total cost increases as output increases, it means that the firm is experiencing diseconomies of scale. This could be due to inefficiencies creeping in as the firm becomes larger, difficulty in coordination and communication, or other factors that lead to increasing costs as the scale of production increases.

Question 5

If a firm increases its output level by 50 percent and,as a result,long-run total cost rises by 40 percent,the firm is experiencing
A) diseconomies of scale
B) constant returns to scale
C) economies of scale
D) increasing marginal returns
E) diminishing marginal returns

Accepted Answer

Economies of scale occur when an increase in output leads to a less than proportional increase in total cost, indicating that the firm is becoming more efficient in production as it grows.

Question 6

If a firm experiences economies of scale,then,as output increases,
A) short-run total costs decline
B) long-run total costs rises proportionately more than output
C) short-run marginal cost must decline
D) long-run total cost rises proportionately less than output
E) demand increases

Accepted Answer

Economies of scale occur when a firm's long-run total costs rise proportionately less than output, meaning that as the firm increases production, the cost per unit of output decreases.

Question 7

Long-run average total cost must always be
A) rising
B) declining
C) greater than or equal to the marginal unit of variable cost
D) greater than or equal to the short run average total cost
E) less than or equal to short-run average total cost

Accepted Answer

The answer of Long-run average total cost must always be
A)...

Question 8

A lumpy input is one that
A) is infinitely divisible
B) is not smooth
C) can only be adjusted in large amounts
D) can not be legally employed
E) can be easily adjusted in small amounts

Accepted Answer

Lumpy inputs refer to resources or inputs that can only be adjusted in large amounts, not smoothly or in small increments. This is often due to the nature of the resource or the technology used.

Question 9

When long-run average total cost decreases as output increases,a firm experiences
A) increasing average fixed cost
B) decreasing total cost
C) economies of scale
D) diseconomies of scale
E) constant returns to scale

Accepted Answer

Economies of scale occur when a firm experiences a decrease in long-run average total cost as output increases. This is generally due to factors such as specialization, bulk purchasing, and increased efficiency in production processes.

Question 10

Diseconomies of scale tend to occur in large firms because
A) the many layers of management are cumbersome and because it is difficult to monitor employees
B) such firms are operating at inappropriate plant sizes for their output levels
C) such firms are operating at a point above their long-run average total cost curves
D) their ability to adjust their plant sizes is constrained by the existence of fixed inputs
E) they fail to garner all the possible gains from specialization

Accepted Answer

Large firms tend to have many layers of management, which can make decision-making slow and bureaucratic. Additionally, it can be difficult to monitor employees in large firms, leading to inefficiencies and diseconomies of scale.

Question 11

Which of the following explains why long-run average total cost at first decreases as output increases?
A) diseconomies of scale
B) less efficient use of lumpy inputs
C) fixed costs become spread out over more units of output
D) gains from specialization of inputs
E) marginal costs rise at a slower rate than average costs in the short run

Accepted Answer

The answer of Which of the following explains why long-run...

Question 12

Which of the following would be an excellent example of a lumpy input
A) pancake griddles
B) water
C) labor
D) corn
E) pancake batter

Accepted Answer

Lumpy inputs refer to resources that cannot be adjusted incrementally but must be added in large quantities or not at all. Pancake griddles are an example of a lumpy input because you cannot adjust the number of griddles in small increments; you either add another griddle or you don't.

Question 13

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
E) slope upward for low output levels and downward for high output levels

Accepted Answer

If a firm experiences constant returns to scale, it means that if it doubles its inputs, output also doubles and average total cost remains the same. In this case, long-run average total cost curve would be horizontal because any output level can be produced at the same minimum average cost as any other output level.

Question 14

The firm's long-run average total cost curve
A) intersects each short-run average total cost curve at its minimum point
B) lies below its short-run average total cost curves at every output level
C) lies above its short-run average total cost curves at every output level
D) coincides with a small segment of its short-run average total cost
E) touches each of the firm's short-run average total cost curves at the lowest points

Accepted Answer

The answer of The firm's long-run average total cost curve
A)...

Question 15

When firms become so large that they have to add additional layers of management and decision making becomes more cumbersome,
A) economies of scale are said to occur
B) marginal cost begins to fall in the short run
C) marginal cost begins to rise in the short run
D) the long-run average total cost curve is flat
E) the long-run average total cost curve slopes upward

Accepted Answer

When firms become very large and add more layers of management, making decision-making more cumbersome, it often leads to inefficiencies that cause the long-run average total cost curve to slope upward. This phenomenon is associated with diseconomies of scale, where per unit costs increase as the firm's size increases beyond a certain point.

Question 16

If a firm is experiencing constant returns to scale
A) long-run average total cost neither rises nor falls as production increases
B) average fixed cost is zero
C) the increase in average variable cost is exactly offset by a decrease in average fixed cost
D) the decrease in average variable cost is exactly offset by an increase in average fixed cost
E) long-run average total cost is zero.

Accepted Answer

Constant returns to scale means that a proportionate increase in all inputs results in an equal proportionate increase in output. As a result, long-run average total cost neither rises nor falls as production increases, hence choice A is correct. Choices B, C, D, and E are not applicable to the concept of constant returns to scale.

Question 17

If all firms in a market have the same LRATC curve,
A) only one of them can survive in the long run
B) the lowest possible long-run price is determined by LRATC at minimum efficient scale
C) the highest possible long-run price is determined by LRATC at minimum efficient scale
D) minimum efficient scale must be zero
E) there is no minimum efficient scale

Accepted Answer

If all firms in a market have the same LRATC curve, they are all operating at minimum efficient scale. Therefore, the lowest possible long-run price is determined by LRATC at minimum efficient scale.

Question 18

In comparing long-run and short-run costs,which of the following statements is true at each level of output?
A) long-run total cost is always less than short-run total costs
B) long-run total cost cannot exceed short-run total cost
C) long-run and short-run total costs are equal when fixed costs are large
D) firms usually make decisions about production levels based on long-run costs rather than short-run costs
E) short-run total cost cannot exceed long-run total cost

Accepted Answer

The answer of In comparing long-run and short-run costs,which of...

Question 19

Assume that an industry requires a very specialized technology that involves high start-up costs for new firms no matter what level of output they produce.In the long run,at low levels of output,these firms will tend to exhibit
A) diminishing marginal returns
B) increasing marginal returns
C) diseconomies of scale
D) constant returns to scale
E) economies of scale

Accepted Answer

Economies of scale occur when increasing production leads to lower average costs, which is common in industries with high start-up costs but lower costs per unit at higher levels of output.

Question 20

-The firm depicted in Figure 7-11 has a larger plant size at point
A) H than at point F
B) F than at point H
C) F than at point G
D) G than at point H
E) H than at point G

Accepted Answer

The answer of 
-The firm depicted in Figure 7-11 has...

Quiz 7: Production and Cost

-The firm depicted in Figure 7-10 currently is producing 200 units of output per day.If it decides to increase its output level to 375 units,then it will

If minimum efficient scale is small relative to the maximum potential market,

A firm's minimum efficient scale is defined as

When long-run average total cost increases as output increases,a firm experiences

If a firm increases its output level by 50 percent and,as a result,long-run total cost rises by 40 percent,the firm is experiencing

If a firm experiences economies of scale,then,as output increases,

Long-run average total cost must always be

A lumpy input is one that

When long-run average total cost decreases as output increases,a firm experiences

Diseconomies of scale tend to occur in large firms because

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

Which of the following would be an excellent example of a lumpy input

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

The firm's long-run average total cost curve

When firms become so large that they have to add additional layers of management and decision making becomes more cumbersome,

If a firm is experiencing constant returns to scale

If all firms in a market have the same LRATC curve,

In comparing long-run and short-run costs,which of the following statements is true at each level of output?

Assume that an industry requires a very specialized technology that involves high start-up costs for new firms no matter what level of output they produce.In the long run,at low levels of output,these firms will tend to exhibit

-The firm depicted in Figure 7-11 has a larger plant size at point