Question 1

Diminishing returns are one explanation for diseconomies of scale.

Accepted Answer

The answer of Diminishing returns are one explanation for diseconomies...

Question 2

A firm employs capital as a fixed input and labor as a variable input in the short run. If the cost of capital falls, what will happen to the AVC, ATC, and MC curves? Explain.

Accepted Answer

The answer of A firm employs capital as a fixed...

Question 3

Use the following to answer question: 
-(Table: Marie's Textbook Company) Look at the table Marie's Textbook Company. Marie has fixed costs of $500 per month and hires workers for $2,000 each per month. With as much precision as possible, calculate the following:
A) total cost of production when four workers are employed
B) the output level that produces the lowest average total cost
C) the price that Marie must charge to break even on the production of 130 textbooks

Accepted Answer

The answer of Use the following to answer question: 
-(Table:...

Question 4

Use the following to answer questions: 
-(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special birthday cakes. Her estimated fixed and average variable costs if she purchases one, two, or three mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. Suppose that Pat used to produce 200 cakes, but she has a sudden increase in demand, so that she begins to produce 400 cakes. Explain how her average total cost will change in the short run and in the long run.

Accepted Answer

The answer of Use the following to answer questions: 
-(Table:...

Question 5

A production function that is characterized by economies of scale will not be subject to the operation of diminishing returns.

Accepted Answer

Economies of scale and diminishing returns are different concepts. Economies of scale refer to cost advantages as production increases, while diminishing returns occur when adding more of one input leads to smaller increases in output, and they can coexist in different stages of production.

Question 6

In the short run, why is it believed that the total product curve increases at a decreasing rate when more labor is added to the production function?

Accepted Answer

The answer of In the short run, why is it...

Question 7

Describe the shape of the AFC curve and explain why it takes this shape. Can AFC ever intersect the x-axis?

Accepted Answer

The answer of Describe the shape of the AFC curve...

Question 8

Economies of scale are often the result of increased specialization, which can occur when output levels increase.

Accepted Answer

Economies of scale refer to the cost advantages that a business can achieve by increasing production and lowering its average costs. Increased specialization is one way to achieve this, as it allows businesses to focus on producing a narrower range of products or services more efficiently. This often results in lower costs per unit of output, which in turn can lead to economies of scale.

Question 9

Consider the statement, "When the marginal cost is rising, the average total cost must also be rising." Is this statement true or false? Explain your reasoning.

Accepted Answer

The answer of Consider the statement, "When the marginal cost...

Question 10

What are some factors that contribute to a firm achieving increasing returns to scale (or economies of scale) in the long run?

Accepted Answer

The answer of What are some factors that contribute to...

Question 11

Economies of scale most often occur in industries whose initial fixed cost of plant and equipment is low.

Accepted Answer

Economies of scale most often occur in industries whose initial fixed cost of plant and equipment is high. This is because the larger the scale of production, the lower the average cost per unit due to spreading fixed costs over a larger output.

Question 12

When the long-run average total cost curve is upward-sloping as output increases, the firm has diseconomies of scale.

Accepted Answer

When the firm experiences diseconomies of scale, the long-run average total cost curve is upward-sloping as output increases. This means that the firm is facing higher costs per unit of output as it increases production.

Question 13

It is time to pay the bills. You pay the rent, the basic cable bill, the electricity bill, and your grocery bill. Which of these are good examples of fixed costs and which are variable costs? Explain your reasoning.

Accepted Answer

The answer of It is time to pay the bills....

Question 14

Suppose a short-run production function always increases at a constant rate of three units of output for every additional worker added. What does this imply about the marginal product of labor? Is this realistic? Explain.

Accepted Answer

The answer of Suppose a short-run production function always increases...

Question 15

Use the following to answer questions: 
-(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special birthday cakes. Her estimated fixed and average variable costs if she purchases one, two, or three mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. Suppose that Pat used to produce 100 cakes, but she has a sudden increase in demand, so that she begins to produce 200 cakes. Explain how her average total cost will change in the short run and in the long run.

Accepted Answer

The answer of Use the following to answer questions: 
-(Table:...

Question 16

If a firm builds a larger plant and increases output and if its long-run average total cost does not change, the firm has constant returns to scale.

Accepted Answer

Constant returns to scale means that if all inputs are increased by the same proportion, the firm's output will also increase by that proportion. If the firm builds a larger plant and increases output without any change in long-run average total cost, it indicates that the firm's output is increasing proportionally to the increase in inputs, hence it has constant returns to scale.

Question 17

When long-run average total cost is constant as output increases, the firm has constant returns to scale.

Accepted Answer

When long-run average total cost is constant as output increases, the firm has constant returns to scale.

Question 18

The advantage of specialization in production is one of the primary reasons for decreasing returns to scale.

Accepted Answer

Specialization in production typically leads to increasing returns to scale because it allows for more efficient use of resources, improved skills, and higher productivity, not decreasing returns.

Question 19

When the long-run average total cost curve is downward-sloping as output increases, the firm has diseconomies of scale.

Accepted Answer

When the long-run average total cost curve is downward-sloping as output increases, the firm has economies of scale. Diseconomies of scale occur when the long-run average total cost curve is upward-sloping as output increases.

Question 20

Some people say, "There are too many cooks in the kitchen," to describe any chaotic scene where nothing gets done. Relate this phrase to short-run production functions.

Accepted Answer

The answer of Some people say, "There are too many...

Quiz 11: Behind the Supply Curve: Inputs and Costs

Diminishing returns are one explanation for diseconomies of scale.

A firm employs capital as a fixed input and labor as a variable input in the short run. If the cost of capital falls, what will happen to the AVC, ATC, and MC curves? Explain.

A production function that is characterized by economies of scale will not be subject to the operation of diminishing returns.

In the short run, why is it believed that the total product curve increases at a decreasing rate when more labor is added to the production function?

Describe the shape of the AFC curve and explain why it takes this shape. Can AFC ever intersect the x-axis?

Economies of scale are often the result of increased specialization, which can occur when output levels increase.

Consider the statement, "When the marginal cost is rising, the average total cost must also be rising." Is this statement true or false? Explain your reasoning.

What are some factors that contribute to a firm achieving increasing returns to scale (or economies of scale) in the long run?

Economies of scale most often occur in industries whose initial fixed cost of plant and equipment is low.

When the long-run average total cost curve is upward-sloping as output increases, the firm has diseconomies of scale.

It is time to pay the bills. You pay the rent, the basic cable bill, the electricity bill, and your grocery bill. Which of these are good examples of fixed costs and which are variable costs? Explain your reasoning.

Suppose a short-run production function always increases at a constant rate of three units of output for every additional worker added. What does this imply about the marginal product of labor? Is this realistic? Explain.

If a firm builds a larger plant and increases output and if its long-run average total cost does not change, the firm has constant returns to scale.

When long-run average total cost is constant as output increases, the firm has constant returns to scale.

The advantage of specialization in production is one of the primary reasons for decreasing returns to scale.

When the long-run average total cost curve is downward-sloping as output increases, the firm has diseconomies of scale.

Some people say, "There are too many cooks in the kitchen," to describe any chaotic scene where nothing gets done. Relate this phrase to short-run production functions.