Question 1

When a firm is experiencing economies of scale, long-run

Accepted Answer

The answer of When a firm is experiencing economies of...

Question 2

In the long run the local coffee shop incurs total costs of $625 when output is 1,250 cups of coffee and $750 when output is 1,500 cups of coffee. For this range of output, the coffee shop exhibits

Accepted Answer

The answer of In the long run the local coffee...

Question 3

Which of the following explains why long-run average cost at first decreases as output increases?

Accepted Answer

As output increases, there are gains from specialization of inputs which means that workers can become more efficient at their specific tasks. This leads to a decrease in long-run average cost.

Question 4

In the long run a company that produces and sells candy bars incurs total costs of $1,200 when output is 2,400 candy bars and $1,400 when output is 2,900 candy bars. The candy bar company exhibits

Accepted Answer

The average total cost decreases from $0.50 per candy bar ($1,200/2,400) to approximately $0.48 per candy bar ($1,400/2,900), indicating economies of scale.

Question 5

Economies of scale occur when a firm's

Accepted Answer

Economies of scale occur when a firm can produce goods at a lower cost per unit as output increases. This is reflected in decreasing long-run average total costs. Therefore, choice B is the correct answer.

Question 6

Economies of scale occur when

Accepted Answer

Economies of scale occur when long-run average total costs fall as output increases. As production expands, firms experience cost savings due to increased efficiencies and utilization of resources. It leads to the reduction of the average cost of producing each unit of output.

Question 7

A firm that wants to achieve economies of scale could do so by

Accepted Answer

Assigning limited tasks to employees allows them to specialize and become more efficient, contributing to economies of scale by lowering the average cost per unit through increased production efficiency.

Question 8

Suppose that a firm's long-run average total costs of producing televisions decreases as it produces between 10,000 and 20,000 televisions. For this range of output, the firm is experiencing

Accepted Answer

Economies of scale refer to the situation where long-run average total costs (LRATC) decrease as production increases. In this scenario, the LRATC decreases as the firm produces more televisions between the range of 10,000 and 20,000, indicating economies of scale. Choice A is the best answer.

Question 9

Economies of scale arise when

Accepted Answer

Economies of scale occur when there is a reduction in average cost per unit of production as output increases. Workers being able to specialize in a particular task is an example of division of labor, which can lead to lower costs and higher efficiency, thus resulting in economies of scale.

Question 10

The most likely explanation for economies of scale is

Accepted Answer

The answer of The most likely explanation for economies of...

Question 11

At low levels of production, the firm

Accepted Answer

At low levels of production, a firm can benefit from increased size due to specialization, has potential for economies of scale, and is less likely to face coordination problems.

Question 12

In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits

Accepted Answer

The average total cost decreases from $11.67 per canister ($1,050/90) to $10 per canister ($1,200/120), indicating economies of scale.

Question 13

The Big Blue Sky jet company has long-run total costs of $20 million if it produces 5 jets and long-run total costs of $24 million if it produces 6 jets. The Big Blue Sky jet company is experiencing

Accepted Answer

The answer of The Big Blue Sky jet company has...

Question 14

Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that

Accepted Answer

The story demonstrates economies of scale in retail sales because Wal-Mart is able to buy goods at cheaper prices due to its ability to purchase them in large quantities, and it locates its stores where land prices are low, which also reduces its costs. This allows Wal-Mart to offer lower prices to customers, leading many to choose to shop there over local retailers. This puts pressure on local retailers, who may not be able to compete on price, and therefore, may go out of business.

Question 15

When a firm experiences constant returns to scale,

Accepted Answer

Constant returns to scale means that when all inputs are increased by the same proportion, output increases by the same proportion, resulting in unchanged long-run average total cost.

Question 16

In the long run a company that produces and sells laundry detergent incurs total costs of $2,500 when output is 1,250 units and $2,750 when output is 1,500 units. For this range of output, the laundry detergent company exhibits

Accepted Answer

The average cost per unit decreases as output increases from 1,250 to 1,500 units, indicating economies of scale.

Question 17

Constant returns to scale occur when the firm's long-run

Accepted Answer

Constant returns to scale means that as a firm increases its scale of production (i.e. output), it can do so in such a way that its average total costs remain constant. This implies that the firm is experiencing neither economies nor diseconomies of scale. Therefore, the correct answer is B, as it states that the average total costs are constant as output increases.

Question 18

Which of the following statements is not correct?

Accepted Answer

Economies of scale is a long-run concept.

Question 19

Constant returns to scale occur when a firm's

Accepted Answer

Constant returns to scale means that as a firm increases its inputs, it will also increase its output at the same rate, without causing any change in the long-run average total costs. Therefore, the correct choice is D, because long-run average total costs remain constant with changes in output.

Question 20

If long-run average total cost decreases as the quantity of output increases, the firm is experiencing

Accepted Answer

Economies of scale occur when a firm experiences decreasing long-run average total costs as the quantity of output increases. This is typically due to the ability to spread fixed costs over a larger number of units, and to take advantage of specialization and other efficiencies that arise as production levels increase. Therefore, if a firm is experiencing a decrease in long-run average total costs as output increases, it is likely experiencing economies of scale.

Quiz 13: The Costs of Production