Question 1

What is meant by the term "economic capacity"?

Accepted Answer

A) The output level at which the firm is physically unable to increase output. 
B) The output level at which average variable cost is at a minimum. 
C) The output level at which average total cost is at a minimum. 
D) The output level at which marginal cost is at a minimum. 
A) The output level at which the firm is physically unable to increase output. 
B) The output level at which average variable cost is at a minimum. 
C) The output level at which average total cost is at a minimum. 
D) The output level at which marginal cost is at a minimum.

Question 2

All of the following,except one,are possible explanations for why large-scale operations may not be as important for firms in many industries in the future.

Accepted Answer

A) Economies of scale are becoming less important in some industries because of new technology. 
B) Financial capital is now more readily available to small firms than it used to be. 
C) Consumer demand is shifting towards more customized products. 
D) Very large,established firms are often less flexible. 
E) Small firms can advertise their products on TV for a per unit cost that is just as inexpensive as large firms. 
A) Economies of scale are becoming less important in some industries because of new technology. 
B) Financial capital is now more readily available to small firms than it used to be. 
C) Consumer demand is shifting towards more customized products. 
D) Very large,established firms are often less flexible. 
E) Small firms can advertise their products on TV for a per unit cost that is just as inexpensive as large firms.

Question 3

Are diminishing marginal productivity and diseconomies of scale the same thing? Explain why or why not.

Accepted Answer

The two are not the same.Diminishing mar

Question 4

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.What is economic capacity in Plant 2?

Accepted Answer

A) 20. 
B) 30. 
C) 40. 
D) 50. 
A) 20. 
B) 30. 
C) 40. 
D) 50.

Question 5

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 economies 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 6

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.Given the cost data above,which of the following statements is correct?

Accepted Answer

A) This firm experiences constant returns to scale. 
B) This firm experiences increasing returns to scale. 
C) This firm experiences decreasing returns to scale. 
D) This firm experiences constant,increasing and decreasing returns to scale. 
E) No comment about returns to scale can be made. 
A) This firm experiences constant returns to scale. 
B) This firm experiences increasing returns to scale. 
C) This firm experiences decreasing returns to scale. 
D) This firm experiences constant,increasing and decreasing returns to scale. 
E) No comment about returns to scale can be made.

Question 7

Economies of scale is the situation in which average costs increase as a firm grows in size.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is correct in reference to the long run?

Accepted Answer

A) All costs are explicit costs. 
B) Both fixed and variable costs exist. 
C) All inputs are variable. 
D) Only one input is variable while all others are fixed. 
A) All costs are explicit costs. 
B) Both fixed and variable costs exist. 
C) All inputs are variable. 
D) Only one input is variable while all others are fixed.

Question 9

-Refer to Table 7.2 to answer this question.If the firm builds a bigger plant and all of its inputs exactly double,what will be the value of its fixed cost?

Accepted Answer

A) $26,000. 
B) $12,000. 
C) $32,000. 
D) More information is needed to answer this question. 
A) $26,000. 
B) $12,000. 
C) $32,000. 
D) More information is needed to answer this question.

Question 10

"The SRAC and LRAC curves are both typically U-shaped for the same reason." Explain why this statement is incorrect.

Accepted Answer

The SRAC curves get their U shape from t

Question 11

All of the following,except one,would result in lower average cost.Which is the exception?

Accepted Answer

A) An increase in output if the firm was operating below its capacity output. 
B) Building a larger plant if the firm was experiencing increasing returns to scale. 
C) Down-sizing the scale of operations if the firm was experiencing diseconomies of scale. 
D) Down-sizing the scale of operations if the firm was experiencing constant returns to scale. 
A) An increase in output if the firm was operating below its capacity output. 
B) Building a larger plant if the firm was experiencing increasing returns to scale. 
C) Down-sizing the scale of operations if the firm was experiencing diseconomies of scale. 
D) Down-sizing the scale of operations if the firm was experiencing constant returns to scale.

Question 12

-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) Plant 1 has excess capacity at output level Q1. 
B) Output level Q3 is economic capacity for plant size 1. 
C) Output level Q3 can be produced for the same cost in plant 1 and in plant 2. 
D) Plant 2 achieves minimum efficient scale. 
E) Increasing returns to scale are experienced when output is increased from Q1 to Q4. 
A) Plant 1 has excess capacity at output level Q1. 
B) Output level Q3 is economic capacity for plant size 1. 
C) Output level Q3 can be produced for the same cost in plant 1 and in plant 2. 
D) Plant 2 achieves minimum efficient scale. 
E) Increasing returns to scale are experienced when output is increased from Q1 to Q4.

Question 13

What is the graphical effect of a decrease in the prices of factor inputs such as labour and materials?

Accepted Answer

A) The SRAC curve would shift down and the LRAC curve would shift up. 
B) The SRAC curve would shift up and the LRAC curve would shift down. 
C) Both the SRAC curve and the LRAC curve would shift up. 
D) Both the SRAC curve and the LRAC curve would shift down. 
A) The SRAC curve would shift down and the LRAC curve would shift up. 
B) The SRAC curve would shift up and the LRAC curve would shift down. 
C) Both the SRAC curve and the LRAC curve would shift up. 
D) Both the SRAC curve and the LRAC curve would shift down.

Question 14

What is the shape of the LRAC curve for a firm enjoying constant returns to scale?

Accepted Answer

The shape of the long-run aver

Question 15

What factor is important in determining the shape of short run cost curves (marginal cost,average cost)but plays no role in determining the shape of long-run cost curve? What are the most important factors in determining the shape of the long-run cost curve? Explain.

Accepted Answer

In determining the shape of short-run co

Question 16

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

Accepted Answer

A) The economic capacity output of the larger plant has a lower average cost. 
B) The economic capacity output of the larger plant has the same average cost. 
C) The economic capacity output of the larger plant has higher average cost. 
D) The LRAC cost curve will decrease as output increases. 
A) The economic capacity output of the larger plant has a lower average cost. 
B) The economic capacity output of the larger plant has the same average cost. 
C) The economic capacity output of the larger plant has higher average cost. 
D) The LRAC cost curve will decrease as output increases.

Question 17

Suppose the inputs and outputs for Carbon Credits are shown below.
   a)If capital cost $40 per unit and labour costs $12 per unit fill in the blanks in the table above.
b)At what output do increasing returns come to an end?
c)What is the shape of the LRAC curve?
d)Graphically,what would happen to the LRAC curve if the cost of capital dropped to $30 per unit?

Accepted Answer

a)
 @#IMG-DLM& 
b)30

Question 18

-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) Firms that produce an output less than Q1 are too small. 
B) Firms that produce an output which greater than Q2 are too large. 
C) Firms that produce output Q2 are achieving MES. 
D) Firms that produce an output which is between Q1 and Q2 are neither too large nor too small. 
E) Firms that produce an output which is less than Q1 cannot be achieving economic capacity. 
A) Firms that produce an output less than Q1 are too small. 
B) Firms that produce an output which greater than Q2 are too large. 
C) Firms that produce output Q2 are achieving MES. 
D) Firms that produce an output which is between Q1 and Q2 are neither too large nor too small. 
E) Firms that produce an output which is less than Q1 cannot be achieving economic capacity.

Question 19

Suppose that a firm's output increases from 525 to 625 units and its total cost increases from $57,750 to $75,000,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 525 units is $110 an

Question 20

What is the graphical effect of technological change?

Accepted Answer

A) The SRAC curves would shift down and the LRAC curve would shift up. 
B) The SRAC curves would shift up and the LRAC curve would shift down. 
C) The SRAC curves and the LRAC curve would shift up. 
D) The SRAC curves and the LRAC curve would shift down. 
A) The SRAC curves would shift down and the LRAC curve would shift up. 
B) The SRAC curves would shift up and the LRAC curve would shift down. 
C) The SRAC curves and the LRAC curve would shift up. 
D) The SRAC curves and the LRAC curve would shift down.

What is meant by the term "economic capacity"?

All of the following,except one,are possible explanations for why large-scale operations may not be as important for firms in many industries in the future.

Are diminishing marginal productivity and diseconomies of scale the same thing? Explain why or why not.

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 economies of scale?

Economies of scale is the situation in which average costs increase as a firm grows in size.

Which of the following is correct in reference to the long run?

-Refer to Table 7.2 to answer this question.If the firm builds a bigger plant and all of its inputs exactly double,what will be the value of its fixed cost?

"The SRAC and LRAC curves are both typically U-shaped for the same reason." Explain why this statement is incorrect.

All of the following,except one,would result in lower average cost.Which is the exception?

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

What is the graphical effect of a decrease in the prices of factor inputs such as labour and materials?

What is the shape of the LRAC curve for a firm enjoying constant returns to scale?

What factor is important in determining the shape of short run cost curves (marginal cost,average cost)but plays no role in determining the shape of long-run cost curve? What are the most important factors in determining the shape of the long-run cost curve? Explain.

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

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

Suppose that a firm's output increases from 525 to 625 units and its total cost increases from $57,750 to $75,000,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?

What is the graphical effect of technological change?

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

What is meant by the term "economic capacity"?

All of the following,except one,are possible explanations for why large-scale operations may not be as important for firms in many industries in the future.

Are diminishing marginal productivity and diseconomies of scale the same thing? Explain why or why not.

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 economies of scale?

Economies of scale is the situation in which average costs increase as a firm grows in size.

Which of the following is correct in reference to the long run?

-Refer to Table 7.2 to answer this question.If the firm builds a bigger plant and all of its inputs exactly double,what will be the value of its fixed cost?

"The SRAC and LRAC curves are both typically U-shaped for the same reason." Explain why this statement is incorrect.

All of the following,except one,would result in lower average cost.Which is the exception?

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

What is the graphical effect of a decrease in the prices of factor inputs such as labour and materials?

What is the shape of the LRAC curve for a firm enjoying constant returns to scale?

What factor is important in determining the shape of short run cost curves (marginal cost,average cost)but plays no role in determining the shape of long-run cost curve? What are the most important factors in determining the shape of the long-run cost curve? Explain.

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

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

Suppose that a firm's output increases from 525 to 625 units and its total cost increases from $57,750 to $75,000,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?

What is the graphical effect of technological change?

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