Question 1

If a firm has increasing returns to scale at all levels of output, the
A)slope of its long-run total cost curve is always negative.
B)slopes of its short-run average cost curves are always negative.
C)slope of its long-run average cost curve is always negative.
D)slope of its production function is always negative.

Accepted Answer

If a firm has increasing returns to scale at all levels of output, it means that as the scale of production increases, the firm's long-run average cost decreases. Therefore, the slope of its long-run average cost curve is always negative.

Question 2

One reason why critics argue that large firms should not be broken up is that in some cases
A)large firms have a concentration of economic power.
B)large firms are less-efficient producers.
C)many smaller firms would be less-efficient producers.
D)there is no economic reason to break up large firms that may have some control over the market.

Accepted Answer

Critics argue against breaking up large firms on the basis that many smaller firms resulting from such a breakup would be less efficient in production. This is because large firms often benefit from economies of scale, which allow them to produce goods and services more efficiently than smaller firms could.

Question 3

A firm's production process shows constant returns to scale. It can produce 5,000 widgets at a total cost of $2,500 and 10,000 widgets at an average cost of
A)$10,000.
B)$5,000.
C)$2,000.
D)$0.50.

Accepted Answer

The answer of A firm's production process shows constant returns...

Question 4

Table 7-6  Table 7-6 shows a baker's daily production relationship for bread. Diminishing returns to labor begin when the baker goes from
A)one hour of labor to two hours of labor.
B)three hours of labor to four hours of labor.
C)six hours of labor to seven hours of labor.
D)seven hours of labor to eight hours of labor.

Accepted Answer

The answer of Table 7-6  Table 7-6 shows a...

Question 5

Whether or not a production process shows economies of scale depends on
A)the number of inputs used.
B)technology.
C)technology and input prices.
D)technology and output prices.

Accepted Answer

Economies of scale depend on technology, as technological advancements can allow production processes to become more efficient, and thus less costly per unit. Input and output prices may affect the overall costs of production, but they do not necessarily indicate whether or not there are economies of scale present.

Question 6

Everything else equal, the AC curve will shift downward if
A)input prices rise.
B)input MPPs rise.
C)output rises.
D)output falls.

Accepted Answer

The AC (Average Cost) curve will shift downward if the Marginal Physical Product (MPP) of inputs rises because this means each input is producing more output, leading to a lower cost per unit of output.

Question 7

Economies of scale
A)require inputs' MPP to fall as output increases (everything else equal).
B)pertain to the long run only.
C)refer to increased output generalized by an increase in the quantity of a single input.
D)imply that the AC curve will fall continuously as output increases in the short run.

Accepted Answer

Economies of scale pertain to the long run because it is during this period that all inputs can be varied to increase output, leading to a decrease in the average cost per unit as production scales up.

Question 8

Economies of scale is another term for
A)increasing returns to scale.
B)constant returns to scale.
C)increasing marginal physical productivity.
D)decreasing returns to scale.

Accepted Answer

Economies of scale refers to the phenomenon where the production cost per unit decreases as the production scale increases. This is also known as increasing returns to scale. The other options, B, C, and D, refer to different concepts related to production, but not specifically to economies of scale.

Question 9

Constant returns to scale for a firm would imply that
A)doubling input usage results in more than double the output.
B)doubling input usage results in less than double the output.
C)doubling input usage results in doubling the output.
D)there are decreasing costs per unit of output.

Accepted Answer

Constant returns to scale means that when all inputs are doubled, output also doubles. This implies that the relationship between input and output is linear, and there are no increasing or decreasing returns to scale. Therefore, choice C is the only correct option.

Question 10

A firm uses workers and seed to grow lettuce. Its lettuce output rises from 100 tons to 200 tons when the number of workers increases from 25 to 75. Its production process shows
A)decreasing returns to scale.
B)diminishing returns to labor.
C)increasing long-run average cost.
D)decreasing short-run average variable cost.

Accepted Answer

As the number of workers increase from 25 to 75, the lettuce output increases from 100 tons to 200 tons. This indicates that there are increasing returns to labor. However, if the firm continues to increase the number of workers, there may be diminishing returns to labor where the increase in output will not be as significant. Therefore, the best choice is B) diminishing returns to labor.

Question 11

If in some range of production, average cost is falling, the firm is experiencing
A)increasing returns to scale.
B)decreasing returns to scale.
C)constant returns to scale.
D)increasing costs per unit of output.

Accepted Answer

When the average cost of production is falling, it indicates that the firm is achieving increasing returns to scale. This means that the firm is able to produce more output with the same inputs, resulting in a decrease in average cost per unit of production.

Question 12

If doubling the quantity of inputs more than doubles the quantity of outputs, the firm is experiencing
A)increasing returns to scale.
B)decreasing returns to scale.
C)constant returns to scale.
D)increasing costs per unit of output.

Accepted Answer

The answer of If doubling the quantity of inputs more...

Question 13

The long-run average cost curve
A)is a composite of short-run AC curves.
B)shows the lowest possible short-run AC corresponding to each output level.
C)depends on the firm's planning horizon.
D)All of the responses are correct.

Accepted Answer

The long-run average cost curve is indeed a composite of short-run average cost (AC) curves, showing the lowest possible short-run AC for each output level, and it varies based on the firm's planning horizon. This curve reflects the most cost-efficient way to produce any given level of output in the long run, when all inputs are variable.

Question 14

If a single large firm is able to produce a market's output less expensively than many small firms is evidence that, for this market, there are
A)increasing returns to scale.
B)constant returns to scale.
C)decreasing returns to scale.
D)regulations in place that limit production costs.

Accepted Answer

The fact that a single large firm is able to produce the market's output less expensively than many small firms suggests that there are increasing returns to scale in this market. This means that as the level of production increases, the average cost of production decreases. As a result, a larger firm that can increase production to take advantage of these economies of scale will have a cost advantage over smaller firms.

Question 15

When economies of scale are present,
A)costs per unit decline as output expands.
B)the government feels responsible for breaking up the firm.
C)firms always make handsome profits.
D)costs fall as the size of the product is increased.

Accepted Answer

Economies of scale refer to the cost advantages that firms experience as they increase production. As output expands, the fixed costs (such as rent, salaries, and equipment) are spread over a larger number of units, thereby reducing the per-unit cost. This allows firms to achieve greater efficiency and profitability as they grow bigger. Therefore, choice A is the correct answer. The other options (B, C, and D) are incorrect because they do not accurately describe the concept of economies of scale.

Question 16

Everything else equal, the AC curve will shift when
A)the price of the product rises.
B)technological change raises the MPP of one input.
C)output rises.
D)increasing returns to scale are present.

Accepted Answer

Technological change that raises the MPP of one input will shift the AC curve downwards, leading to lower costs of production for a given level of output. The other options do not necessarily affect the AC curve.

Question 17

If economies of scale exist for a particular production relationship, long-run average costs will
A)rise.
B)fall.
C)first rise and then fall.
D)be unaffected since there is no direct relationship between the two.

Accepted Answer

Economies of scale refer to the cost advantages that a firm experiences as it increases its level of output. As production increases, the long-run average cost of producing each unit falls. This is because the fixed costs of production and overhead costs are spread out across a greater number of units, resulting in a lower cost per unit. Therefore, if economies of scale exist, long-run average costs will fall.

Question 18

If a firm has increasing returns to scale at all levels of output, then the
A)marginal cost for the firm declines over the entire range of output.
B)average cost for the firm declines over the entire range of output.
C)fixed costs of operation diminish to zero.
D)production technology is optimized.

Accepted Answer

If a firm has increasing returns to scale at all levels of output, it means that as the firm increases the quantity of inputs, the output increases at a faster rate. This leads to lower average cost for the firm over the entire range of output, as the fixed costs are spread over a larger quantity of output, resulting in economies of scale. However, it does not necessarily mean that marginal cost is declining over the entire range of output or that fixed costs diminish to zero, and optimization of production technology depends on other factors as well.

Question 19

If a firm increases inputs by 15 percent and output increases by 12.5 percent, the firm is experiencing
A)increasing returns to scale.
B)decreasing returns to scale.
C)constant returns to scale.
D)increasing costs per unit of output.

Accepted Answer

The firm is experiencing decreasing returns to scale as the increase in inputs is not proportionally reflected in the increase in output. This suggests that the firm is becoming less efficient as it grows in size.

Question 20

When economies of scale exist,
A)production costs per unit increase as output expands.
B)production costs per unit decline as output expands.
C)total production costs decrease.
D)total production costs increase.

Accepted Answer

Economies of scale refer to the phenomenon where production costs per unit decrease as output expands. This is because fixed costs (e.g. rent, machinery) can be spread out over a larger number of units, thus lowering the average cost per unit. Therefore, option B is the correct answer.

Quiz 7: Production, Inputs, and Cost: Building Blocks for Supply Analysis

If a firm has increasing returns to scale at all levels of output, the

One reason why critics argue that large firms should not be broken up is that in some cases

A firm's production process shows constant returns to scale. It can produce 5,000 widgets at a total cost of $2,500 and 10,000 widgets at an average cost of

Table 7-6 Table 7-6 shows a baker's daily production relationship for bread. Diminishing returns to labor begin when the baker goes from

Whether or not a production process shows economies of scale depends on

Everything else equal, the AC curve will shift downward if

Economies of scale

Economies of scale is another term for

Constant returns to scale for a firm would imply that

A firm uses workers and seed to grow lettuce. Its lettuce output rises from 100 tons to 200 tons when the number of workers increases from 25 to 75. Its production process shows

If in some range of production, average cost is falling, the firm is experiencing

If doubling the quantity of inputs more than doubles the quantity of outputs, the firm is experiencing

The long-run average cost curve

If a single large firm is able to produce a market's output less expensively than many small firms is evidence that, for this market, there are

When economies of scale are present,

Everything else equal, the AC curve will shift when

If economies of scale exist for a particular production relationship, long-run average costs will

If a firm has increasing returns to scale at all levels of output, then the

If a firm increases inputs by 15 percent and output increases by 12.5 percent, the firm is experiencing

When economies of scale exist,