Exam 6: Production and Cost Analysis in the Long Run

Assume that as a firm expands its scale of operation, the minimum point of its short-run average total cost curve is unchanged. In this case, we would say that the firm is experiencing diseconomies of scale.

Which of the following statements about the beer industry is correct?

Historically, empirical evidence showed that it was more cost effective to have a single generator of electricity serve a particular region's electricity needs than to have several smaller units compete against each other. More recently, technological advances have occurred in the generation of electricity that allow much smaller generating units to produce electricity for the same average cost as much larger units. Explain how this change would be reflected in the firm's long-run average cost curve and minimum efficient scale.

Labor resistance can be a major impediment to increased productivity in many firms.

Explain why X-inefficiency is likely to be more prevalent in an industry in which firms have market power.

Regarding the production of health care, more recent studies suggest that economies of scale exist up to a hospital size of approximately 200 beds.

In the long-run production function, all of the inputs to the production process are allowed to vary.

In the long-run average cost function, only the amount of capital is allowed to vary.

Assume a new technology is developed that increases the productivity of capital and creates additional economies of scale. How would this affect the firm's minimum efficient scale of operation. Illustrate this effect graphically.

The negatively-sloped part of the long-run average total cost curve is due to which of the following?

Empirical evidence suggests that economies of scale, advertising and image differentiation, and risk spreading all help account for the large-scale production that exists in many sectors of the economy.

Long-run average cost is defined as:

A production method that relies on large quantities of machines and equipment and smaller quantities of labor is referred to as a:

Economists describe short-run decisions as "constrained" decisions, while long-run decisions are described as "planning" decisions. Referring to a firm's short-run average cost function and long-run average cost function, explain this distinction.

Which of the following is not cited as one of the factors that accounts for the large-scale production that exists in many sectors of the economy?

Explain how labor resistance and political and legislative influences reduce the ability of firms to minimize their costs of production. What do the two have in common in this regard?

The marginal rate of technical substitution MRTS) along an isoquant:

An improvement in technology would cause each of the isoquants in a firm's isoquant map to shift out away from the origin.

Failure to account for the increased transportation costs that would result from building fewer and more centrally located production facilities could result in firm managers selecting a scale of operation that is larger than the optimum.

In which of the following situations would the minimum efficient scale of operation provide little or no guidance regarding how many firms should serve the market to minimize production costs?