Question 1

-Refer to the graph above to answer this question.Between what output levels do increasing returns to scale exist?

Accepted Answer

A) Q1 and Q2 only. 
B) Q1 and Q3 only. 
C) Q1 and Q4. 
D) Q1 and Q5. 
E) Q4 and Q5. 
A) Q1 and Q2 only. 
B) Q1 and Q3 only. 
C) Q1 and Q4. 
D) Q1 and Q5. 
E) Q4 and Q5. C

Question 2

The long-run average cost curve declines continuously as output levels increase.

Accepted Answer

A) True 
 B)False  False

Question 3

The graph below includes two plant sizes as illustrated by ACS1U1B11S1U1B0 and ACS1U1B12S1U1B0.
  
-Refer to the graph above to answer this question.Which of the following statements is correct if a firm is operating at point a on AC1?

Accepted Answer

A) The firm has achieved capacity output. 
B) The firm is achieving MES. 
C) An increase in the output would not lower costs. 
D) Building a larger plant would result in lower long-run average cost. 
E) Building a larger plant would not result in lower long-run average cost. 
A) The firm has achieved capacity output. 
B) The firm is achieving MES. 
C) An increase in the output would not lower costs. 
D) Building a larger plant would result in lower long-run average cost. 
E) Building a larger plant would not result in lower long-run average cost. D

Question 4

The long run is the circumstance in which at least one input is variable.

Accepted Answer

A) True 
 B)False

Question 5

What is meant by the term economic capacity?

Accepted Answer

A) An output level where the firm is physically unable to increase output. 
B) The output level where average variable cost is at a minimum. 
C) The output level where average total cost is at a minimum. 
D) Total fixed costs are at a minimum. 
A) An output level where the firm is physically unable to increase output. 
B) The output level where average variable cost is at a minimum. 
C) The output level where average total cost is at a minimum. 
D) Total fixed costs are at a minimum.

Question 6

-Refer to the graph above to answer this question.All of the following statements except one are correct.Which is the exception?

Accepted Answer

A) AC1,AC2 and AC3 are long-run average cost curves. 
B) The long-run average cost curve illustrates both increasing and constant returns to scale. 
C) Constant returns to scale exist between outputs Q4 and Q5. 
D) An increase in output from Q1 to Q3 could occur in plant 1. 
E) Both the short-run and the long run-costs are illustrated in this graph. 
A) AC1,AC2 and AC3 are long-run average cost curves. 
B) The long-run average cost curve illustrates both increasing and constant returns to scale. 
C) Constant returns to scale exist between outputs Q4 and Q5. 
D) An increase in output from Q1 to Q3 could occur in plant 1. 
E) Both the short-run and the long run-costs are illustrated in this graph.

Question 7

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?

Accepted Answer

a)Constant returns t

Question 8

Which of the following statements is correct if constant returns to scale are present?

Accepted Answer

A) A doubling of inputs will lead to output more than doubling. 
B) A doubling of inputs will lead to output also doubling. 
C) A doubling of output will lead to inputs more than doubling. 
D) Output remains constant irrespective of inputs. 
A) A doubling of inputs will lead to output more than doubling. 
B) A doubling of inputs will lead to output also doubling. 
C) A doubling of output will lead to inputs more than doubling. 
D) Output remains constant irrespective of inputs.

Question 9

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

Accepted Answer

A firm might be operating belo

Question 10

What does the term "minimum efficient scale" mean?

Accepted Answer

A) The smallest size a firm can be in order to minimize both short-run and long-run average costs. 
B) The smallest size a firm can be in order to minimize short-run marginal cost. 
C) The smallest size a firm can be in order to minimize short-run average cost. 
D) The smallest size a firm can be in order to minimize long-run marginal cost. 
E) The smallest size a firm can be in order to minimize both short-run and long-run marginal cost. 
A) The smallest size a firm can be in order to minimize both short-run and long-run average costs. 
B) The smallest size a firm can be in order to minimize short-run marginal cost. 
C) The smallest size a firm can be in order to minimize short-run average cost. 
D) The smallest size a firm can be in order to minimize long-run marginal cost. 
E) The smallest size a firm can be in order to minimize both short-run and long-run marginal cost.

Question 11

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?

Accepted Answer

a)See figure below:

Question 12

Adam Smith observed that the division of labour is limited by the size of the market.Which one of the following statements is not consistent with this observation?

Accepted Answer

A) A limited-sized market can prevent firms from achieving economic capacity. 
B) A limited-sized market can prevent firms from achieving their minimum efficient scale. 
C) A limited-sized market can prevent firms from achieving minimum short-run average cost. 
D) A limited-sized market can prevent firms from achieving minimum long-run average cost. 
E) A limited-sized market can prevent firms from achieving excess capacity. 
A) A limited-sized market can prevent firms from achieving economic capacity. 
B) A limited-sized market can prevent firms from achieving their minimum efficient scale. 
C) A limited-sized market can prevent firms from achieving minimum short-run average cost. 
D) A limited-sized market can prevent firms from achieving minimum long-run average cost. 
E) A limited-sized market can prevent firms from achieving excess capacity.

Question 13

The fact that a one-minute television commercial costs a large firm no more than a small firm is an example of which of the following?

Accepted Answer

A) Increasing returns to scale. 
B) Pecuniary economies of scale. 
C) Technical economies of scale. 
D) Management specialization. 
A) Increasing returns to scale. 
B) Pecuniary economies of scale. 
C) Technical economies of scale. 
D) Management specialization.

Question 14

Suppose that a firm's total cost of producing an output of 400 units a day is currently $2,000.If technology and the price of inputs remain unchanged,what level of output would be produced if total cost rises to $4,000 and increasing returns to scale exist?

Accepted Answer

A) 5 units. 
B) More than 400 but less than 800 units. 
C) 800 units. 
D) More than 800 units. 
A) 5 units. 
B) More than 400 but less than 800 units. 
C) 800 units. 
D) More than 800 units.

Question 15

All of the following statements except one are correct.Which is the exception?

Accepted Answer

A) Firms always operate in the short run. 
B) The law of diminishing returns applies in both the short run and the long run. 
C) All inputs are variable in the long run. 
D) As output increases,long run average cost could decline,remain constant or increase. 
E) The long run can be described as a planning horizon. 
A) Firms always operate in the short run. 
B) The law of diminishing returns applies in both the short run and the long run. 
C) All inputs are variable in the long run. 
D) As output increases,long run average cost could decline,remain constant or increase. 
E) The long run can be described as a planning horizon.

Question 16

In the graph below six short-run average cost curves labeled a through f are illustrated.
  
-Refer to the graph above to answer this question.Which set of short-run average cost curves illustrates diseconomies of scale?

Accepted Answer

A) a and b only 
B) a,b and c only. 
C) a,b,c,and d 
D) d and e only. 
E) e and f only. 
A) a and b only 
B) a,b and c only. 
C) a,b,c,and d 
D) d and e only. 
E) e and f only.

Question 17

Which of the following would illustrate diseconomies of scale?

Accepted Answer

A) The rising segment of the SRAC curve. 
B) The rising segment of the LRAC curve 
C) A growing margin between short-run and long-run average cost as output increased. 
D) Marginal cost below short-run average cost. 
E) Marginal cost above short-run average cost. 
A) The rising segment of the SRAC curve. 
B) The rising segment of the LRAC curve 
C) A growing margin between short-run and long-run average cost as output increased. 
D) Marginal cost below short-run average cost. 
E) Marginal cost above short-run average cost.

Question 18

"An industry will have a large variety of different size of firms when the industry experiences economies of scale." Evaluate this statement.

Accepted Answer

This statement is incorrect.When an indu

Question 19

Below are some cost data pertaining to Plant 1,which has total fixed costs of $1,000.Suppose that Plant 2 is exactly twice the size of Plant 1 while using (at economic capacity)twice the amount of labour and materials,and that it produces exactly twice the output.Further,assume that the prices of these inputs do not change.
  
-Refer to the information above to answer this question.What is the output produced if the total cost in Plant 2 is $14,000?

Accepted Answer

A) 10. 
B) 20. 
C) 30. 
D) 40. 
E) 80. 
A) 10. 
B) 20. 
C) 30. 
D) 40. 
E) 80.

Question 20

While a firm can plan for the long run,it must always operate in the short run.

Accepted Answer

A) True 
 B)False

-Refer to the graph above to answer this question.Between what output levels do increasing returns to scale exist?

The long-run average cost curve declines continuously as output levels increase.

The graph below includes two plant sizes as illustrated by AC₁ and AC₂. -Refer to the graph above to answer this question.Which of the following statements is correct if a firm is operating at point a on AC₁?

The long run is the circumstance in which at least one input is variable.

What is meant by the term economic capacity?

-Refer to the graph above to answer this question.All of the following statements except one are correct.Which is the exception?

Which of the following statements is correct if constant returns to scale are present?

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

What does the term "minimum efficient scale" mean?

Adam Smith observed that the division of labour is limited by the size of the market.Which one of the following statements is not consistent with this observation?

The fact that a one-minute television commercial costs a large firm no more than a small firm is an example of which of the following?

Suppose that a firm's total cost of producing an output of 400 units a day is currently $2,000.If technology and the price of inputs remain unchanged,what level of output would be produced if total cost rises to $4,000 and increasing returns to scale exist?

All of the following statements except one are correct.Which is the exception?

In the graph below six short-run average cost curves labeled a through f are illustrated. -Refer to the graph above to answer this question.Which set of short-run average cost curves illustrates diseconomies of scale?

Which of the following would illustrate diseconomies of scale?

"An industry will have a large variety of different size of firms when the industry experiences economies of scale." Evaluate this statement.

While a firm can plan for the long run,it must always operate in the short run.

The Economic Problem

Demand and Supply: An Introduction

Demand and Supply: An Elaboration

Elasticity

Consumer Choice

A Firms Production Decisions and Costs in the Short Run

Perfect Competition

An Evaluation of Competitive Markets

Monopoly

Imperfect Competition

The Factors of Production

International Trade

Filters

Exam 7: Costs in the Long Run

-Refer to the graph above to answer this question.Between what output levels do increasing returns to scale exist?

The long-run average cost curve declines continuously as output levels increase.

The graph below includes two plant sizes as illustrated by AC1 and AC2. -Refer to the graph above to answer this question.Which of the following statements is correct if a firm is operating at point a on AC1?

The long run is the circumstance in which at least one input is variable.

What is meant by the term economic capacity?

-Refer to the graph above to answer this question.All of the following statements except one are correct.Which is the exception?

Which of the following statements is correct if constant returns to scale are present?

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

What does the term "minimum efficient scale" mean?

Adam Smith observed that the division of labour is limited by the size of the market.Which one of the following statements is not consistent with this observation?

The fact that a one-minute television commercial costs a large firm no more than a small firm is an example of which of the following?

Suppose that a firm's total cost of producing an output of 400 units a day is currently $2,000.If technology and the price of inputs remain unchanged,what level of output would be produced if total cost rises to $4,000 and increasing returns to scale exist?

All of the following statements except one are correct.Which is the exception?

In the graph below six short-run average cost curves labeled a through f are illustrated. -Refer to the graph above to answer this question.Which set of short-run average cost curves illustrates diseconomies of scale?

Which of the following would illustrate diseconomies of scale?

"An industry will have a large variety of different size of firms when the industry experiences economies of scale." Evaluate this statement.

While a firm can plan for the long run,it must always operate in the short run.

The Economic Problem

Demand and Supply: An Introduction

Demand and Supply: An Elaboration

Elasticity

Consumer Choice

A Firms Production Decisions and Costs in the Short Run

Perfect Competition

An Evaluation of Competitive Markets

Monopoly

Imperfect Competition

The Factors of Production

International Trade

Filters

The graph below includes two plant sizes as illustrated by AC₁ and AC₂. -Refer to the graph above to answer this question.Which of the following statements is correct if a firm is operating at point a on AC₁?