Question 1

Table 13-20
Listed in the table are the long-run total costs for three different firms. 
-Refer to Table 13-20. Firm A is experiencing economies of scale.

Accepted Answer

Firm A's total cost decreases as output increases, indicating economies of scale.

Question 2

Table 13-20
Listed in the table are the long-run total costs for three different firms. 
-Refer to Table 13-20. Firm A is experiencing constant returns to scale.

Accepted Answer

The answer of Table 13-20
Listed in the table are the...

Question 3

If long-run average total cost is rising, then the firm is experiencing economies of scale.

Accepted Answer

If long-run average total cost is rising, then the firm is experiencing diseconomies of scale, not economies of scale. Economies of scale occur when long-run average total cost decreases as output increases.

Question 4

Table 13-20
Listed in the table are the long-run total costs for three different firms. 
-Refer to Table 13-20. Firm C is experiencing diseconomies of scale.

Accepted Answer

The long-run total cost is increasing as output increases, indicating that the firm is facing diseconomies of scale.

Question 5

The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are.

Accepted Answer

Specialization allows individuals and businesses to focus on producing a limited range of products or services, which leads to increased efficiency and lower costs. This results in greater productivity and higher output, which can then be sold for a profit. As a result, economies of scale are achieved, which enables modern societies to produce and consume goods and services on a larger scale than ever before. This, in turn, leads to greater prosperity and a higher standard of living for many people.

Question 6

Table 13-20
Listed in the table are the long-run total costs for three different firms. 
-Refer to Table 13-20. Firm C is experiencing economies of scale.

Accepted Answer

The answer of Table 13-20
Listed in the table are the...

Question 7

If the production function exhibits diminishing marginal product, the total cost function gets steeper as the quantity of output increases.
​

Accepted Answer

Diminishing marginal product means that as more units of input are added, the additional output produced by each additional input decreases. As a result, the cost of producing each additional unit of output increases, causing the total cost function to become steeper as output increases.

Question 8

If the average-total-cost curve is falling, then the marginal-cost curve must also be falling.

Accepted Answer

This statement is not necessarily true. The marginal-cost curve may be falling or rising, depending on the extent to which the average-total-cost curve is declining. If the marginal cost is below the average total cost, then the average-total-cost curve will continue to decline as output expands. However, if the marginal cost is above the average total cost, then the average-total-cost curve will start to rise as output expands. Therefore, the relationship between the two curves depends on the shape of the average-total-cost curve.

Question 9

The U-shaped average-total-cost curve reflects the U-shaped average-fixed-cost curve.

Accepted Answer

The U-shaped average-total-cost curve reflects both the U-shaped average-variable-cost curve and the downward slope of the average-fixed-cost curve as output increases, not just the shape of the average-fixed-cost curve.

Question 10

Adam Smith's example of the pin factory demonstrates that economies of scale result from specialization.

Accepted Answer

Adam Smith's example of the pin factory in "The Wealth of Nations" shows how breaking down the production process into specialized tasks can increase efficiency and productivity, resulting in economies of scale.

Question 11

When a firm experiences economies of scale, long-run average total cost falls as the quantity of output increases.

Accepted Answer

Economies of scale refer to the phenomenon where the cost per unit of output decreases as the quantity of output increases. Therefore, long-run average total cost (LRATC) decreases as output increases, indicating that the firm is benefitting from economies of scale.

Question 12

Adam Smith describes a visit to a car factory when discussing economies of scale in his book An Inquiry into the Nature and Causes of the Wealth of Nations.

Accepted Answer

Adam Smith did not mention a car factory in his book. The concept of economies of scale is discussed in the book, but not using a car factory as an example.

Question 13

Table 13-20
Listed in the table are the long-run total costs for three different firms. 
-Refer to Table 13-20. Firm B is experiencing constant returns to scale.

Accepted Answer

Constant returns to scale occur when increasing all inputs by a certain proportion leads to a proportional increase in output. In this case, Firm B's total costs increase by the same proportion as its inputs, indicating constant returns to scale.

Question 14

Jaxon borrows $10,000 from a bank and withdraws $20,000 from his personal savings to open a tattoo parlor. The interest rate is 3 percent for both the bank loan and his personal savings. Jaxon also quit his job as a waiter, which paid $20,000. According to an economist, Jaxon's opportunity cost of opening the tattoo parlor equals $20,900.

Accepted Answer

Jaxon's start-up cost for opening the tattoo parlor is $30,000 ($10,000 from bank loan + $20,000 from personal savings). 
The annual interest on his bank loan is $300 ($10,000 * 0.03) and the annual interest he would have earned on his personal savings if he had kept it in the bank is $600 ($20,000 * 0.03). 
Therefore, his total annual interest cost is $900. 
Since Jaxon quit his job as a waiter, his opportunity cost is equal to his lost income, which is $20,000. 
Adding his total annual interest cost to his opportunity cost, Jaxon's total opportunity cost of opening the tattoo parlor is $20,900.

Question 15

Jaxon borrows $10,000 from a bank and withdraws $20,000 from his personal savings to open a tattoo parlor. The interest rate is 3 percent for both the bank loan and his personal savings. Jaxon's implicit costs are $900.
​

Accepted Answer

Jaxon's implicit costs are the opportunity costs of using his own resources, in this case, the interest he could have earned on his personal savings. With a 3 percent interest rate on $20,000, his implicit costs would be $600 (0.03 * $20,000), not $900.

Question 16

Table 13-20
Listed in the table are the long-run total costs for three different firms. 
-Refer to Table 13-20. Firm B is experiencing diseconomies of scale.

Accepted Answer

The answer of Table 13-20
Listed in the table are the...

Question 17

A firm produces 60 units of output with 5 workers, 65 units with 6 workers, and 68 units with 7 workers. The firm's production function exhibits diminishing marginal productivity between 5 and 7 workers.
​

Accepted Answer

The fact that the output increases by a smaller amount with each additional worker (from 60 to 65 to 68 units) suggests that the production function exhibits diminishing marginal productivity, which is a characteristic of many real-world production processes.

Question 18

Diseconomies of scale often arise because higher production levels allow specialization among workers.

Accepted Answer

Diseconomies of scale often arise due to inefficiencies associated with managing a larger workforce and operations, not because of specialization, which typically contributes to economies of scale by increasing efficiency.

Question 19

Economists include both explicit and implicit costs while accountants include only implicit costs.
​

Accepted Answer

Economists include both explicit (tangible costs like salary, rent, etc.) and implicit costs (opportunity costs like forgone income from the next best alternative use of resources), while accountants only include explicit costs in their calculations.

Question 20

In some cases, specialization allows larger factories to produce goods at a lower average cost than smaller factories.

Accepted Answer

Specialization allows large factories to focus on producing specific goods efficiently, which can result in economies of scale and lower costs per unit produced. This is because the fixed costs of production (e.g. machinery, facilities, training) can be spread out over more units produced, reducing the average cost per unit.

Quiz 13: The Costs of Production

Table 13-20 Listed in the table are the long-run total costs for three different firms. -Refer to Table 13-20. Firm A is experiencing economies of scale.

Table 13-20 Listed in the table are the long-run total costs for three different firms. -Refer to Table 13-20. Firm A is experiencing constant returns to scale.

If long-run average total cost is rising, then the firm is experiencing economies of scale.

Table 13-20 Listed in the table are the long-run total costs for three different firms. -Refer to Table 13-20. Firm C is experiencing diseconomies of scale.

The use of specialization to achieve economies of scale is one reason modern societies are as prosperous as they are.

Table 13-20 Listed in the table are the long-run total costs for three different firms. -Refer to Table 13-20. Firm C is experiencing economies of scale.

If the production function exhibits diminishing marginal product, the total cost function gets steeper as the quantity of output increases. ​

If the average-total-cost curve is falling, then the marginal-cost curve must also be falling.

The U-shaped average-total-cost curve reflects the U-shaped average-fixed-cost curve.

Adam Smith's example of the pin factory demonstrates that economies of scale result from specialization.

When a firm experiences economies of scale, long-run average total cost falls as the quantity of output increases.

Adam Smith describes a visit to a car factory when discussing economies of scale in his book An Inquiry into the Nature and Causes of the Wealth of Nations.

Table 13-20 Listed in the table are the long-run total costs for three different firms. -Refer to Table 13-20. Firm B is experiencing constant returns to scale.

Jaxon borrows $10,000 from a bank and withdraws $20,000 from his personal savings to open a tattoo parlor. The interest rate is 3 percent for both the bank loan and his personal savings. Jaxon's implicit costs are $900. ​

Table 13-20 Listed in the table are the long-run total costs for three different firms. -Refer to Table 13-20. Firm B is experiencing diseconomies of scale.

A firm produces 60 units of output with 5 workers, 65 units with 6 workers, and 68 units with 7 workers. The firm's production function exhibits diminishing marginal productivity between 5 and 7 workers. ​

Diseconomies of scale often arise because higher production levels allow specialization among workers.

Economists include both explicit and implicit costs while accountants include only implicit costs. ​

In some cases, specialization allows larger factories to produce goods at a lower average cost than smaller factories.

If the production function exhibits diminishing marginal product, the total cost function gets steeper as the quantity of output increases.

Jaxon borrows $10,000 from a bank and withdraws $20,000 from his personal savings to open a tattoo parlor. The interest rate is 3 percent for both the bank loan and his personal savings. Jaxon's implicit costs are $900.

A firm produces 60 units of output with 5 workers, 65 units with 6 workers, and 68 units with 7 workers. The firm's production function exhibits diminishing marginal productivity between 5 and 7 workers.

Economists include both explicit and implicit costs while accountants include only implicit costs.