Q&A Hero

Q: What are economies of scale? What are diseconomies of scale?

Q: When a firm experiences a positive technological change A) the price of a share of the firm's stock rises. B) the firm is able to produce more output using the same inputs, or the same output using fewer inputs. C) the value of the firm's assets rises. D) the firm will hire additional workers in order to increase production.

Q: A U-shaped long run average cost curve implies that a firm experiences economies of scale at low levels of production and diseconomies of scale at high levels of production.

Q: When a firm produces more output using the same inputs or the same output using fewer inputs we say that the firm A) experiences an increase in demand. B) experiences positive technological change. C) will hire more workers in order to produce more output. D) is operating in the short run.

Q: If a firm is experiencing diseconomies of scale, its long-run average cost curve is increasing.

Q: The processes a firm uses to turn inputs into outputs of goods and services is called A) technology. B) technological change. C) marginal analysis. D) positive economic analysis.

Q: Minimum efficient scale is defined as the level of output at which the short-run average total cost stops decreasing.

Q: The basic activity of a firm is A) to set the prices of its products as high as possible. B) to compete with other firms that produce similar products. C) to provide jobs for its employees. D) to use inputs to produce outputs of goods and services.

Q: An important reason why diseconomies of scale arise is because firms may have to hire lower skilled workers as firms expand.

Q: Improvements in inventory control represent a positive technological change because they allow firms to produce the same output with fewer inputs. In recent years, many firms have adopted an inventory system in which firms accept shipments from suppliers as close as possible to the time they will be needed. Wal-Mart has been a pioneer in using inventory control systems to this in its stores. This type of inventory system is called a ________ inventory system. A) first-in-first-out B) cash-and-carry C) just-in-time D) buy-now-pay-later

Q: If production displays constant returns to scale, then all economies of scale have been exhausted.

Q: Suppose a chain of convenience stores reorganized its system of supplying its stores with food. This led to a sharp reduction in the number of trucks that the company had to use and increased the amount of fresh food on store shelves. Which of the following statements best describes the chain stores' actions? A) The change implemented is not an example of technological change because it did not require the use of new machinery of equipment. B) Technological change refers only to the introduction of new products or improvements to existing product. As such, the scenario described in the question is not technological change. C) The firm is able to produce more output (increase its sales) using fewer inputs (less trucks). Therefore, the chain of convenience stores has implemented a positive technological change. D) The scenario described is an example of management efficiency and not technological change. Essentially, the chain changes its way of operating its business.

Q: If the long-run average total cost curve is downward-sloping, then the firm is experiencing decreasing returns to scale.

Q: Which of the following is an example of positive technological change? A) A firm offers workers a higher wage to work on weekends and at night. As a result, the firm is able to increase its weekly production of surf boards. B) A firm buys an additional machine that it uses to make surf boards. As a result, the firm is able to increase its weekly production of surf boards. C) A firm conducts a new advertising campaign. As a result, the demand for the firm's surf boards increases. D) A firm's workers participate in a training program designed to increase the number of surf boards they can produce per day.

Q: In the long run the relevant cost is total cost.

Q: The difference between technology and technological change is that A) technology refers to the processes used by a firm to transform inputs into output while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs. B) technology is carried out by firms producing physical goods but technological change is an intellectual exercise into seeking ways to improve production. C) technology is product-centered, that is, developing new products with our limited resources while technological change is process-centered in that it focuses on developing new production techniques. D) technology involves the use of capital equipment while technological change requires the use of brain power.

Q: Assume that you observe the long-run average cost curve of ACME Bookstores, a national chain. Starting from the point on the curve where output is zero and moving to the right which of the following lists the behavior of long-run average costs in the correct sequence (that is, which will be observed first, second, etc.)? A) minimum efficient scale; economies of scale; constant returns to scale; diseconomies of scale B) economies of scale; constant returns to scale; diseconomies of scale; minimum efficient scale C) constant returns to scale; economies of scale; minimum efficient scale; diseconomies of scale D) economies of scale; minimum efficient scale; constant returns to scale; diseconomies of scale

Q: A firm increased its production and sales because the firm's manager rearranged the layout of his factory floor. This is an example of A) investment in human capital. B) economies of scale. C) positive technological change. D) inspired management.

Q: Two stores - Lazy Guys 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? A) Because Ralph's Recliners sells more output its average fixed costs are lower than Lazy Guy's average fixed cost. B) The rent Lazy Guys pays for its building is greater than the rent paid by Ralph's Recliners. C) Ralph's explicit costs are less because Ralph owns the land on which his building is located. Lazy Guy must make lease payments for the land on which its store is located. D) The price of recliners charged by Ralph's is greater than the price charged by Lazy Guys.

Q: A firm's cost of production is determined by all of the following except A) the technology used to produce its output. B) the productivity of its workers. C) the cost of raw material used in production. D) the amount of corporate taxes it must pay on its profit.

Q: Which of the following statements explains the difference between diminishing returns and diseconomies of scale? A) Diminishing returns are the result of changes in explicit costs. Diseconomies of scale are the result of changes in explicit costs and implicit costs. B) Diminishing returns refer to production while diseconomies of scale refer to costs. C) Diminishing returns cause a firm's marginal cost curve to rise; diseconomies of scale cause a firm's marginal cost curve to fall. D) Diminishing returns apply only to the short run; diseconomies of scale apply only in the long run.

Q: Which of the following is an example of market "production," as used by economist? A) Garvey takes out a low-cost government loan to start his pet-sitting business. B) Heidi makes a pizza for her family's dinner. C) Katrina works as a cashier at the local produce stand. D) The theatre and film studies department in Fine Art's College stages a play at the local theatre.

Q: 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? A) Despite an expensive advertising campaign the Model A did not earn the company a profit. B) Model A cars made at the River Rouge plant failed to earn Ford a profit. Ford eventually constructed smaller plants to make the Model A at a lower average cost. C) Model A cars made at the River Rouge plant failed to earn a profit. Ford reduced the average cost of the Model A by cutting its employees' wages. D) Model A cars made at the River Rouge plant failed to earn a profit because the price of steel used to manufacture the Model A rose when workers in the steel industry went on strike.

Q: Which of the following is not a source of technological advancement for a producer? A) better trained workers B) more efficient physical capital C) higher skill level of managers D) outsourcing some aspect of production

Q: Table 11-8Quantity (sets)Long Run Average Cost100$4020035300304003050035Elegant 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?A) 100 unitsB) 200 unitsC) 300 unitsD) 400 units

Q: A firm has successfully adopted a positive technological change when A) it can produce more output using the same inputs. B) it produces less pollution in its production process. C) can pay its workers less yet increase its output. D) it sees an increase in worker productivity.

Q: Table 11-8Quantity (sets)Long Run Average Cost100$4020035300304003050035Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data.Refer to Table 11-8. Elegant Settings experiencesA) economies of scale up to an output level of 400.B) diminishing returns up to an output level of 400.C) increasing returns beyond an output level of 400.D) economies of scale at an output of 300 or less and diseconomies of scale at an output level above 400.

Q: 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 A) the firm will not be operating efficiently. B) the firm will be operating efficiently. C) the firm would lower its average costs by reducing its scale of operation. D) the firm will not be able to earn a profit.

Q: 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 A) it should produce with the scale of operation associated with ATCa. B) it should produce with the scale of operation associated with ATCb. C) it should produce with the scale of operation associated with ATCc. D) it will experience constant returns to scale.

Q: 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 A) occur for output rates greater than 5,000 picture frames. B) occur between 5,000 and 20,000 picture frames per month. C) occur between 10,000 and 20,000 pictures frames per month. D) will shift the long-run average cost curve downward.

Q: 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 A) the firm will not make a profit because the average cost of production will be too high. B) the firm will experience diseconomies of scale. C) the firm will experience diminishing returns. D) the short-run average total cost will equal the long-run average total cost of production.

Q: 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? A) 10,000 workers B) 5,000 picture frames C) 20,000 picture frames D) 10,000 picture frames

Q: Minimum efficient scale is defined as the level of output at which A) all economies of scale are exhausted. B) diminishing returns affect average total cost. C) the firm's long-run average total cost starts falling. D) the maximum output is produced.

Q: The level of output at which all economies of scale have been exhausted is known as A) constant returns to scale. B) minimum efficient scale. C) the economically efficient output level. D) optimal economic size.

Q: A curve showing the lowest cost at which a firm is able to produce a given level of output in the long run is A) a long-run production function. B) a long-run marginal cost curve. C) a minimum efficient scale curve. D) a long-run average total cost curve.

Q: Diseconomies of scale occur when A) long-run average costs rise as a firm increases its output. B) long-run average cost fall as a firm expands its plant size. C) short-run average costs rise as a firm expands its plant size. D) long-run labor costs rise as a firm increases its output.

Q: Which of the following is not a reason why firms experience economies of scale? A) Technology can make it possible to increase production with a smaller increase in at least one input. B) Workers and managers can become more specialized, enabling them to be more productive. C) Larger firms may be able to purchase inputs at lower costs than smaller competitors. D) As output increases, the managers can begin to have difficulty coordinating the operations of their firms.

Q: 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. A) economies of scale B) diseconomies of scale C) higher average costs but lower total costs D) higher marginal costs but lower total costs

Q: 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 A) minimum efficient scale. B) more than minimum efficient scale. C) less than minimum efficient scale. D) minimum capacity.

Q: Economies of scale occur when A) a firm's long-run average total costs fall as it increases the quantity of output it produces. B) the marginal product of labor is greater than the average product of labor. C) short-run marginal cost falls. D) the demand for a firm's output increases.

Q: 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 A) diminishing returns. B) economies of scale. C) diseconomies of scale. D) the law of supply.

Q: 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) The shape of the LRATC is affected by the law of diminishing returns. B) The SRATC, but not the LRATC, can be used by a firm's managers for planning. C) The LRATC shows the lowest cost at which a firm is able to produce a given level of output when no inputs are fixed. D) The contribution of average fixed cost to LRATC is greater than its contribution to SRATC.

Q: In the long run A) the firm's fixed costs are greater than its fixed costs in the short run. B) all of the firm's costs are explicit costs; there are no implicit costs of production. C) the firm is more profitable than it is in the short run. D) all of the firm's costs are variable costs.

Q: Figure 11-10 Refer to Figure 11-10. Identify the minimum efficient scale of production. A) Qa B) Qb C) Qc D) Qd

Q: Figure 11-10 Refer to Figure 11-10. Suppose for the past 8 years the firm has been producing Qdunits per period using plant size ATC4. Now, following a permanent change in demand, it plans to cut production to Qc units. What will happen to its average cost of production? A) In the short run, its average cost falls from $47 to $41, and in the long run, average cost falls even further to $37. B) In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41. C) In the short run, its average cost falls from $47 to $37, and in the long run, average cost rises to $41. D) In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $37.

Q: What is the difference between "diminishing marginal returns" and "diseconomies of scale"? A) Both concepts explain why marginal cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable. B) Both concepts explain why average total cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable. C) Diminishing marginal returns, which applies only in the short run when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale, which applies in the long run when all factors are variable, explains why average cost increases. D) Diminishing marginal returns,which applies only in the long run when all factors are variable, explains why average variable cost increases, while diseconomies of scale, which applies in the short run when at least one factor is fixed, explains why average total cost increases.

Q: The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." Based on this quote, what must be true of the plant's average cost of production curve? A) It is upward-sloping. B) It is downward-sloping. C) It is a ray from the origin. D) It is U-shaped.

Q: The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that A) Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up with. B) as Toyota expanded its capacity, it experienced diseconomies of scale. C) Toyota was focused on "churning" out cars for which it did not invest sufficiently in training its workers. D) high demand for Toyota's cars prevented the company from focusing on its strength: auto design.

Q: If production displays diseconomies of scale, the long run average cost curve is A) above the short run average total cost curve. B) above the long run marginal cost curve. C) upward sloping. D) downward sloping.

Q: Ford Motor Company started producing the Model A at plants scattered around the United States A) to save on transport costs. B) because diseconomies of scale at its initial River Rouge plant resulted in high production costs. C) to locate its production centers closer to its customers. D) because it was not able to attract skilled workers in Michigan (where its first plant was located).

Q: When a firm's long-run average cost curve is horizontal for a range of output, then that range of production displays A) increasing returns to scale. B) constant returns to scale. C) decreasing returns to scale. D) constant average fixed costs.

Q: The ABC Company manufactures routers that are used to provide high-speed Internet service. ABC sells an average of 1,000 routers each month, but to exhaust economies of scale in its industry ABC would have to sell 3,000 routers each month. Therefore A) ABC is experiencing diseconomies of scale. B) ABC is experiencing diminishing returns. C) to reach minimum efficient scale ABC would have to sell at least 3,000 routers each month. D) ABC will soon go out of business.

Q: At the minimum efficient scale A) all possible economies of scale have not been exhausted. B) the firm has achieved the lowest possible average cost of production. C) any increases in the scale of operation will encounter further economies of scale. D) marginal cost is at its minimum.

Q: All of the following statements are true of the minimum efficient scale except one. Which one? A) All possible economies of scale have been exhausted. B) The short-run average total cost curve's minimum point is equal to the long run average cost curve's minimum point. C) Any increase in the scale of operation will encounter diseconomies of scale. D) An increase in the output level will increase profit.

Q: The minimum efficient scale is A) the level of output where diminishing returns have not set in yet. B) the plant size that yields the most profit. C) level of operation where long-run average costs are lowest. D) the smallest output level where the firm finally reaches productive efficiency.

Q: Which of the following is a reason why a firm would experience diseconomies of scale? A) To finance an increase in the size of its plant a firm must borrow more money or sell more shares of stock. B) As the size of the firm increases, it becomes more difficult to find markets where it doesn't already have operations. C) As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants. D) As the size of the firm increases, it must operate in other countries where differences in language, customs and laws increase its average costs.

Q: If, when a firm doubles all its inputs, its average cost of production increases, then production displays A) diminishing returns. B) economies of scale. C) diseconomies of scale. D) declining fixed costs.

Q: If a firm decreases its plant size and finds that its long-run average costs have decreased, then A) its labor is more productive in a smaller plant. B) its diseconomies of scale are less. C) the firm should reduce its plant size even more. D) the firm is now profitable.

Q: The long-run average cost curve shows A) the lowest average cost of producing every level of output in the long run. B) where the most profitable level of output occurs. C) the average cost of producing where diminishing returns are not present. D) the plant size or scale that the firm should build.

Q: Over the past twenty years, the number of small family farms has fallen significantly and in their place there are fewer, but larger, farms owned by corporations. Which of the following best explains this trend? A) diseconomies of scale in farming B) economies of scale in farming C) diminishing returns to labor in farming D) declining productivity

Q: Economies of scale exist as a firm increases its size in the long run because of all of the following except A) the firm can afford more sophisticated technology in production. B) labor and management can specialize even further in their tasks. C) as a larger input buyer, the firm can purchase inputs at a lower per unit cost. D) as a firm expands its production, its profit margin per-unit of output increases.

Q: If production displays economies of scale, the long-run average cost curve is A) above the short-run average total cost curve. B) downward-sloping. C) upward sloping. D) below the long-run marginal cost curve.

Q: If, when a firm doubles all its inputs, its average cost of production decreases, then production displays A) diminishing returns. B) economies of scale. C) diseconomies of scale. D) declining fixed costs.

Q: Long-run cost curves are U-shaped because A) of the law of demand. B) of the law of diminishing returns. C) of economies and diseconomies of scale. D) of the law of supply.

Q: Figure 11-9 Refer to Figure 11-9 above to solve the following problems. a. Calculate the fixed cost of production. b. Calculate the average total cost of production when the firm produces 20 units of output. c. Calculate the average variable cost of production when the firm produces 20 units of output. d. Calculate the average fixed cost of production when the firm produces 20 units of output. e. Calculate the average fixed cost of production when the firm produces 15 units of output. f. If the firm increases output from 15 to 20 units what is the marginal cost of output?

Q: Figure 11-8 Refer to Figure 11-8 above to answer the following questions. a. Identify the curves in the diagram. A ________ B ________ C ________ b. What is the numerical value of fixed cost when the quantity of output=10? c. What is the numerical value of variable cost when the quantity of output=10? d. What is the numerical value of total cost when the quantity of output =10? e. What is the numerical value of average fixed cost when the quantity of output =10? f. What is the numerical value of average total cost when the quantity of output =10? g. On the graph identify the area that represents the total variable cost of production when the quantity of output =10. h. On the graph identify the area that represents the fixed cost of production when the quantity of output =10.

Q: Suppose the total cost of producing 40,000 flash drives is $120,000, and the fixed cost is $30,000. a. What is the variable cost? b. When output is 40,000, what are the average variable cost and the average fixed cost? c. Assuming the cost curves have the usual shape, is the dollar difference between the average total cost and the average variable cost greater when the output is 40,000 flash drives or when the output is 60,000 flash drives? Explain.

Q: Explain how the listed events (a-d) would affect the following at Hilton Hotels. i. Marginal cost ii. Average variable cost iii. Average fixed cost iv. Average total cost a. Hilton decides on an across-the-board 5 percent increase in executive salaries. b. Hilton decides to eliminate all print advertising. c. Hilton signs a new contract with the Culinary Workers Union that requires the company to increase wages for all its kitchen workers. d. The federal government starts to levy a $5 room tax on all hotel rooms.

Q: Use the general relationship between marginal and average values to explain why a marginal cost curve must intersect an average total cost curve and an average variable cost curve at their minimum points.

Q: As the level of output increases, what happens to the value of average fixed cost, and what happens to the difference between the value of average total cost and average variable cost?

Q: As output increases, the distance between average total cost and average variable cost increases.

Q: A firm's short-run average total cost curve is parallel to its short-run average variable cost curve.

Q: As output increases, average fixed cost gets smaller and smaller.

Q: Average total cost is equal to average variable cost minus average fixed cost.

Q: In a diagram showing the average total cost and average variable cost curves, the minimum point of the average total cost is A) at the same level of output as the minimum point of the average variable cost. B) at a larger level of output than the minimum point of the average variable cost. C) at a lower level of output than the minimum point of the average variable cost. D) at the same level of output as the maximum of the total product curve.

Q: All of the following cost curves are U-shaped except one. Which curve is not U-shaped? A) the marginal cost curve B) the average fixed cost curve C) the average total cost curve D) the average variable cost curve

Q: Which of the following is true at the output level where average total cost is at its minimum? A) Marginal cost equals average total cost. B) Average variable cost equals fixed cost. C) Marginal cost equals average variable cost. D) Average total cost equals average fixed cost.

Q: Figure 11-7 Figure 11-7 shows the cost structure for a firm. Refer to Figure 11-7. If output is 100 units what is the fixed cost of production? A) $8 B) $800 C) $1,000 D) This cannot be determined from the diagram.

Q: Figure 11-7 Figure 11-7 shows the cost structure for a firm. Refer to Figure 11-7. When output level is 100, what is the total cost of production? A) $20 B) $1,000 C) $1,200 D) $2,000

Q: Figure 11-7 Figure 11-7 shows the cost structure for a firm. Refer to Figure 11-7. When the output level is 100 units average fixed cost is A) $10. B) $8. C) $5. D) This cannot be determined from the diagram.