Question 1

Table 11-8
  Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data.
-Refer to Table 11-8. Elegant Settings experiences

Accepted Answer

The average cost per unit decreases up to an output level of 300, indicating economies of scale. However, beyond an output level of 400, the average cost per unit increases, indicating diseconomies of scale. Between 300 and 400, the average cost per unit remains relatively constant, indicating constant returns to scale.

Question 2

Table 11-8
  Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data.
-Which of the following statements explains the difference between diminishing returns and diseconomies of scale?

Accepted Answer

The answer of Table 11-8
  Elegant Settings manufactures stainless...

Question 3

Figure 11-11  Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc.
-Refer to Figure 11-11. If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATCc,

Accepted Answer

The short-run average cost curve for ATCc intersects the long-run average cost curve at a point where ATCc is producing at the minimum efficient scale. Therefore, the firm will be operating efficiently.

Question 4

Table 11-8
  Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data.
-Two stores-Lazy Guy's and Ralph's Recliners-are located in the same city. Both stores buy recliner chairs from the same manufacturer at the same price and both stores are about the same size, so that the fixed costs of production for both stores are the same. Ralph's Recliners sells more recliners per month and Ralph's has a lower average total cost of production. Which of the following can explain why the average total cost of production is lower for Ralph's Recliners?

Accepted Answer

The lower average total cost of production at Ralph's Recliners is likely due to economies of scale, as they are selling more output. This means that their fixed costs are spread over a larger quantity of output, resulting in lower average fixed costs.

Question 5

Figure 11-10 
-If a firm's long-run average total curve shows that it can produce 5,000 DVDs at an average cost of $2.00 and 15,000 DVDs at an average cost of $1.50 this is evidence of

Accepted Answer

The decreasing average cost as the firm increases production output suggests that there are economies of scale in production.

Question 6

Figure 11-10 
-Which of the following statements regarding a firm's long-run average total cost (LRATC) curve and its short-run average total cost (SRATC) curve is true?

Accepted Answer

The LRATC curve shows the lowest cost at which a firm is able to produce a given level of output when no inputs are fixed, meaning that all inputs can be adjusted to achieve the most efficient production process. The SRATC curve, on the other hand, only reflects the cost of production in the short run when at least one input is fixed. The shape of the LRATC is affected by various factors such as economies of scale, learning effects, and technological advancements, but not by the law of diminishing returns. Finally, both the SRATC and LRATC include average fixed cost, but the contribution of average fixed cost to LRATC decreases as the level of output increases, while it remains constant in SRATC.

Question 7

A curve showing the lowest cost at which a firm is able to produce a given level of output in the long run is

Accepted Answer

The long-run average total cost (LRATC) curve shows the lowest cost at which a firm is able to produce a given level of output in the long run. This curve encompasses all possible long-run production functions and minimum efficient scale curves, as it reflects the optimal combination of inputs for each level of output. The LRATC curve is therefore the most comprehensive and accurate representation of a firm's long-run cost structure.

Question 8

The level of output at which all economies of scale have been exhausted is known as

Accepted Answer

Minimum efficient scale is the level of output at which all economies of scale have been exhausted. It is the lowest level of output at which a firm can produce its product at the lowest average total cost possible.

Question 9

Figure 11-10 
-If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, it was previously operating at

Accepted Answer

If the airport is able to lower its average cost per airplane landing by building an additional terminal, it suggests that it was operating at a level below the minimum efficient scale. The addition of the new terminal allows the airport to spread its fixed costs over a larger number of airplane landings, lowering its average cost.

Question 10

Diseconomies of scale occur when

Accepted Answer

Diseconomies of scale occur when the long-run average costs rise as a firm increases its output. This can happen due to factors such as inefficiencies in coordination and communication, difficulty in maintaining a consistent level of quality, and higher administrative costs. It is the opposite of economies of scale, which occur when the long-run average costs fall as a firm expands its output. Short-run average costs may also rise as a firm expands its plant size, but that is not considered a diseconomy of scale as it only happens in the short run. Long-run labor costs may also rise as a firm increases its output, but again, that is not specific to diseconomies of scale.

Question 11

Table 11-8
  Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data.
-Refer to Table 11-8. What is the minimum efficient scale of production?

Accepted Answer

The minimum efficient scale of production is the output level at which average total cost is at its minimum, which in this case is 3.00 at a production level of 300 units. Therefore, the best choice is C.

Question 12

Figure 11-11  Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc.
-Refer to Figure 11-11. Constant returns to scale

Accepted Answer

The answer of Figure 11-11  Figure 11-11 illustrates the...

Question 13

Figure 11-10 
-Economies of scale occur when

Accepted Answer

Economies of scale occur when a firm's long-run average total costs fall as it increases the quantity of output it produces. This means that as the firm increases its production, it becomes more efficient and is able to produce each unit of output at a lower cost, resulting in a lower long-run average total cost.

Question 14

Figure 11-11  Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc.
-Refer to Figure 11-11. For output rates greater than 20,000 picture frames per month,

Accepted Answer

The long-run average cost curve shows that the firm experiences diseconomies of scale beyond an output rate of 20,000 picture frames per month, meaning that the average cost of production will continue to increase. Therefore, choice B is the best answer.

Question 15

Which of the following is not a reason why firms experience economies of scale?

Accepted Answer

The statement "As output increases, the managers can begin to have difficulty coordinating the operations of their firms" actually describes a phenomenon known as diseconomies of scale, which is the opposite of economies of scale. Therefore, D is not a reason why firms experience economies of scale.

Question 16

If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, then the expansion would provide ________ to the airlines.

Accepted Answer

The situation described in the question is an example of economies of scale. By expanding and building a new terminal, the airport is able to handle more passengers and airplanes at a lower cost per landing. This allows airlines to operate more efficiently and potentially increase their profits.

Question 17

Figure 11-11  Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc.
-Refer to Figure 11-11. In the short run, if the firm sells fewer than 5,000 picture frames per month,

Accepted Answer

If the firm sells fewer than 5,000 picture frames per month, it should produce with the scale of operation associated with ATCa. This is because ATCa is the lowest point on the short-run average cost curves and represents the lowest average cost at a small scale of production.

Question 18

Figure 11-11  Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc.
-Refer to Figure 11-11. The minimum efficient scale of output is reached at what rate of output?

Accepted Answer

The minimum efficient scale of output occurs at the point where the LRAC curve is at its lowest point, which is where the SRAC curve of the largest firm (ATCc) intersects with the LRAC curve. This occurs at an output rate of 10,000 picture frames. Therefore, the best choice is D.

Question 19

Table 11-8
  Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data.
-The River Rouge plant was built by the Ford Motor Company in the 1920s to produce the company's Model A car. Which of the following is evidence that the River Rouge plant suffered from diseconomies of scale?

Accepted Answer

The fact that Ford eventually constructed smaller plants to make the Model A at a lower average cost suggests that the River Rouge plant suffered from diseconomies of scale. This means that as the scale of production increased, the average cost per unit also increased, rather than decreasing as expected with economies of scale.

Question 20

Minimum efficient scale is defined as the level of output at which

Accepted Answer

The answer of Minimum efficient scale is defined as the...

Quiz 11: Technology, Production, and Costs

Table 11-8 Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data. -Refer to Table 11-8. Elegant Settings experiences

Table 11-8 Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data. -Which of the following statements explains the difference between diminishing returns and diseconomies of scale?

Figure 11-10 -If a firm's long-run average total curve shows that it can produce 5,000 DVDs at an average cost of $2.00 and 15,000 DVDs at an average cost of $1.50 this is evidence of

Figure 11-10 -Which of the following statements regarding a firm's long-run average total cost (LRATC) curve and its short-run average total cost (SRATC) curve is true?

A curve showing the lowest cost at which a firm is able to produce a given level of output in the long run is

The level of output at which all economies of scale have been exhausted is known as

Figure 11-10 -If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, it was previously operating at

Diseconomies of scale occur when

Table 11-8 Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data. -Refer to Table 11-8. What is the minimum efficient scale of production?

Figure 11-11 Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc. -Refer to Figure 11-11. Constant returns to scale

Figure 11-10 -Economies of scale occur when

Figure 11-11 Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc. -Refer to Figure 11-11. For output rates greater than 20,000 picture frames per month,

Which of the following is not a reason why firms experience economies of scale?

If an airport decides to expand by building an additional passenger terminal, and in doing so it lowers its average cost per airplane landing, then the expansion would provide ________ to the airlines.

Minimum efficient scale is defined as the level of output at which