Question 1

-Refer to Figure 7.7 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 short-run average cost curves. 
B) The long-run average cost curve illustrates both economies of and constant returns to scale. 
C) Constant returns to scale exist between outputs Q4 and Q5. 
D) Plant 3 achieves minimum efficient scale. 
E) Both the short run and the long run are illustrated in this graph. 
A) AC1,AC2,and AC3 are short-run average cost curves. 
B) The long-run average cost curve illustrates both economies of and constant returns to scale. 
C) Constant returns to scale exist between outputs Q4 and Q5. 
D) Plant 3 achieves minimum efficient scale. 
E) Both the short run and the long run are illustrated in this graph.

Question 2

Which of the following statements is correct if the appropriately sized firm is one with a large output?

Accepted Answer

A) Constant returns to scale must begin at low levels of output. 
B) Economies of scale must prevail until high levels of output are reached. 
C) Diseconomies of scale must begin at low levels of output. 
D) Constant returns to scale must be absent. 
A) Constant returns to scale must begin at low levels of output. 
B) Economies of scale must prevail until high levels of output are reached. 
C) Diseconomies of scale must begin at low levels of output. 
D) Constant returns to scale must be absent.

Question 3

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 capacity output in Plant 1?

Accepted Answer

A) 10. 
B) 30. 
C) 60. 
D) 70. 
A) 10. 
B) 30. 
C) 60. 
D) 70.

Question 4

A market can be too small if its limits the size of the firm to an output level that is below economic capacity in the long-run

Accepted Answer

A) True 
 B)False

Question 5

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.

Accepted Answer

(a)Fill in the missing values in the tab

Question 6

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.

Accepted Answer

a)Long-run average cost curve.

Question 7

Below is short-run cost data for four different plant sizes.Plant 2 has exactly twice as many inputs as does Plant 1.Plant 3 has exactly three times as many inputs as does Plant 1 and Plant 4 has exactly four times as many inputs as does Plant 1.
  
-Refer to the information above to answer this question.If the firm is currently producing an output of 20 using Plant 1 and it decides to build Plant 2,what will happen to its short-run average cost if its output remains unchanged?

Accepted Answer

A) It will remain unchanged. 
B) It will rise by $3. 
C) It will fall by $3. 
D) It will fall by $11. 
E) It will rise by $11. 
A) It will remain unchanged. 
B) It will rise by $3. 
C) It will fall by $3. 
D) It will fall by $11. 
E) It will rise by $11.

Question 8

Which of the following is the most likely cause of diseconomies of scale?

Accepted Answer

A) Increasing returns to scale. 
B) A small scale of operations and output. 
C) Low productivity. 
D) Complex interpersonal communication structures. 
A) Increasing returns to scale. 
B) A small scale of operations and output. 
C) Low productivity. 
D) Complex interpersonal communication structures.

Question 9

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 decreasing 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 10

The graph below includes two plant sizes as illustrated by ACS1U1B11S1U1B0 and ACS1U1B12S1U1B0.
  
-Refer to the graph above to answer this question.All of the following statements except one are correct if a small market limits a firm's output to Q1.Which is the exception?

Accepted Answer

A) The firm is not achieving capacity output in plant 1. 
B) The firm is not achieving minimum efficient scale. 
C) The firm is experiencing excess capacity. 
D) The firm would benefit from a larger market. 
E) Building a larger plant would lower the firm's average cost of producing Q1. 
A) The firm is not achieving capacity output in plant 1. 
B) The firm is not achieving minimum efficient scale. 
C) The firm is experiencing excess capacity. 
D) The firm would benefit from a larger market. 
E) Building a larger plant would lower the firm's average cost of producing Q1.

Question 11

Which of the following statements about diseconomies of scale is correct?

Accepted Answer

A) They pertain to the short run only. 
B) They pertain to the long run only. 
C) They pertain to both the short run and the long run. 
D) They are synonymous with increasing returns to scale. 
A) They pertain to the short run only. 
B) They pertain to the long run only. 
C) They pertain to both the short run and the long run. 
D) They are synonymous with increasing returns to scale.

Question 12

Suppose that a firm's output increases from 500 to 1,000 units and its total cost increases from $50,000 to $100,000,and if the price of inputs and technology remain unchanged,calculate the change in average total cost and state whether constant returns to scale,economies of scale or diseconomies of scale exist in this case.

Accepted Answer

A) Increase of $100 and economies of scale 
B) Increase of $100 and diseconomies of scale 
C) Increase of $100 and constant returns to scale 
D) No change and constant returns to scale 
A) Increase of $100 and economies of scale 
B) Increase of $100 and diseconomies of scale 
C) Increase of $100 and constant returns to scale 
D) No change and constant returns to scale

Question 13

Constant returns to scale is the situation in which a firm's output increases by the same percentage as the increase in its inputs.

Accepted Answer

A) True 
 B)False

Question 14

Suppose that a firm's output increases from 400 to 500 units and its total cost increases from $80,000 to $95,000,and if the price of inputs and technology remain unchanged,is the firm operating in the downward sloping or upward sloping part of the long-run average cost curve?

Accepted Answer

The average cost of 400 units is $200 an

Question 15

The graph below includes two plant sizes as illustrated by ACS1U1B11S1U1B0 and ACS1U1B12S1U1B0.
  
-Refer to the graph above to answer this question.If the firm is producing in a plant with AC1 as its short run average cost curve,and a small market is limiting the firm's output to Q1,which of the following statements is true?

Accepted Answer

A) Building a larger plant would lower the firm's average cost of producing Q10. 
B) Increasing the output in the current plant size would not lower the short-run average cost. 
C) The firm would benefit from a larger market because it could build a larger plant,capture economies of scale and achieve economic capacity. 
D) The firm would benefit from a larger market because it could build a larger plant and capture economies of scale,but it still would not be able to achieve economic capacity. 
A) Building a larger plant would lower the firm's average cost of producing Q10. 
B) Increasing the output in the current plant size would not lower the short-run average cost. 
C) The firm would benefit from a larger market because it could build a larger plant,capture economies of scale and achieve economic capacity. 
D) The firm would benefit from a larger market because it could build a larger plant and capture economies of scale,but it still would not be able to achieve economic capacity.

Question 16

Discuss the difference between increasing returns and economies of scale.

Accepted Answer

Increasing returns is the cost advantage

Question 17

-Refer to the graph above to answer this question.Can this firm produce an output of 200 at an average total cost of $40?

Accepted Answer

A) Yes,and that output would be economic capacity. 
B) Yes,but production would be inefficient. 
C) No,this combination is unobtainable given present resource prices and the current state of technology. 
D) No,this combination would be unobtainable because production is inefficient. 
A) Yes,and that output would be economic capacity. 
B) Yes,but production would be inefficient. 
C) No,this combination is unobtainable given present resource prices and the current state of technology. 
D) No,this combination would be unobtainable because production is inefficient.

Question 18

Economies of scale:

Accepted Answer

A) Is another term for constant returns to scale. 
B) Are cost advantages achieved as a result of large-scale operations. 
C) Only come in pecuniary forms. 
D) Are the same as decreasing returns to scale. 
A) Is another term for constant returns to scale. 
B) Are cost advantages achieved as a result of large-scale operations. 
C) Only come in pecuniary forms. 
D) Are the same as decreasing returns to scale.

Question 19

Table 7.1 contains short-run cost date for four different plants sizes for Jackson's Jazz Instruments.
Table 7.1
  
a)What is the best size of plant for each of the following level of output?
i.200
ii.300
iii.400
iv.500
b)Is Jackson's Jazz Instruments experiencing economies,diseconomies,or constant return to scale?

Accepted Answer

a)The best size of plant for
i

Question 20

If a firm builds a larger plant and constant returns to scale apply,which of the following statements is correct?

Accepted Answer

A) The capacity output of the larger plant has a lower average cost. 
B) The capacity output of the larger plant has the same average cost. 
C) Economies of scale are present. 
D) LRAC will decrease as output increases. 
A) The capacity output of the larger plant has a lower average cost. 
B) The capacity output of the larger plant has the same average cost. 
C) Economies of scale are present. 
D) LRAC will decrease as output increases.

-Refer to Figure 7.7 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 the appropriately sized firm is one with a large output?

A market can be too small if its limits the size of the firm to an output level that is below economic capacity in the long-run

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.

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.

Which of the following is the most likely cause of diseconomies of scale?

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 decreasing returns to scale exist?

The graph below includes two plant sizes as illustrated by AC₁ and AC₂. -Refer to the graph above to answer this question.All of the following statements except one are correct if a small market limits a firm's output to Q₁.Which is the exception?

Which of the following statements about diseconomies of scale is correct?

Constant returns to scale is the situation in which a firm's output increases by the same percentage as the increase in its inputs.

Suppose that a firm's output increases from 400 to 500 units and its total cost increases from $80,000 to $95,000,and if the price of inputs and technology remain unchanged,is the firm operating in the downward sloping or upward sloping part of the long-run average cost curve?

Discuss the difference between increasing returns and economies of scale.

-Refer to the graph above to answer this question.Can this firm produce an output of 200 at an average total cost of $40?

Economies of scale:

If a firm builds a larger plant and constant returns to scale apply,which of the following statements is correct?

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 Figure 7.7 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 the appropriately sized firm is one with a large output?

A market can be too small if its limits the size of the firm to an output level that is below economic capacity in the long-run

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.

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.

Which of the following is the most likely cause of diseconomies of scale?

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 decreasing returns to scale exist?

The graph below includes two plant sizes as illustrated by AC1 and AC2. -Refer to the graph above to answer this question.All of the following statements except one are correct if a small market limits a firm's output to Q1.Which is the exception?

Which of the following statements about diseconomies of scale is correct?

Constant returns to scale is the situation in which a firm's output increases by the same percentage as the increase in its inputs.

Suppose that a firm's output increases from 400 to 500 units and its total cost increases from $80,000 to $95,000,and if the price of inputs and technology remain unchanged,is the firm operating in the downward sloping or upward sloping part of the long-run average cost curve?

Discuss the difference between increasing returns and economies of scale.

-Refer to the graph above to answer this question.Can this firm produce an output of 200 at an average total cost of $40?

Economies of scale:

If a firm builds a larger plant and constant returns to scale apply,which of the following statements is correct?

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.All of the following statements except one are correct if a small market limits a firm's output to Q₁.Which is the exception?