Question 1

Shawn owns a stroller store.Last year his average cost of selling a stroller was $1,000.If he expands the size of his store this year and sees his average cost increase to $1,050,his long-run average total cost curve should be

Accepted Answer

As the average cost of selling a stroller increases from $1000 to $1050, it indicates an increase in the cost of production, such as rent, labor, and raw materials. Therefore, the long-run average total cost curve should be upward sloping, indicating that the cost of producing each stroller increases with the production scale. This suggests that as the store expands, its production cost per unit may increase, indicating economies of scale diminishing. Hence, option E is the best choice.

Question 2

Explain what a production function is.Is the production function an economic or technological relationship?

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Question 3

Explain the difference between an implicit cost and an explicit cost,and how both costs relate to economic and accounting profits.

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Question 4

If a firm adds multiple layers of management as it increases its scale of production,thus adding to its costs,we would expect its long-run average cost curve to be

Accepted Answer

As a firm adds multiple layers of management, it increases its costs due to the additional salaries and benefits that must be paid to each manager. This added expense can lead to an upward shift in the long-run average cost curve, resulting in higher costs per unit of production. Therefore, the answer is C) upward sloping.

Question 5

Use the following graph to answer the following questions.
 
-The long-run cost curve between points A and B illustrates

Accepted Answer

The long-run cost curve between points A and B illustrates economies of scale. This is because as the quantity produced increases, the average total cost decreases, indicating that there are cost savings from producing at a larger scale.

Question 6

Explain what the marginal product curve for a labor input typically looks like.

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Question 7

Explain why it is important for a firm to know its efficient scale of production.

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Question 8

Hubert owns a scooter store.Last year his average cost of selling a scooter was $1,000.If he expands the size of his store this year and sees his average cost remain the same,his long-run average total cost curve should be

Accepted Answer

If Hubert expands the size of his store and his average cost of selling a scooter remains the same, it means he is achieving economies of scale. This would cause his long-run average total cost curve to be horizontal, indicating that he can produce more units without experiencing an increase in average cost. This is because fixed costs are spread over a larger number of units, leading to lower average costs.

Question 9

Use the following graph to answer the following questions.
 
-The long-run cost curve between points E and F illustrates

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Question 10

What is the concept of diminishing marginal product?

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Question 11

Describe what a production function is and what would happen if a firm becomes less efficient because of a law that requires a certain number of workers per unit of capital.

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Question 12

What is an implicit cost?

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Question 13

If a firm experiences some gains from specialization as it expands its scale of production,and adds additional layers of management as it does so,assuming they have the same effect,we would expect its long-run average total cost curve to be

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Question 14

Ting owns a diamond shop.Last year her average cost of selling a diamond was $900.If she expands the size of her store this year and sees her average cost decrease to $850,her long-run average total cost curve should be

Accepted Answer

If Ting is able to decrease her average cost, it means that she is achieving economies of scale, which means her long-run average total cost curve should be downward sloping. As her production increases, her cost per unit decreases.

Question 15

When a firm is at its efficient scale of operation it produces the

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Question 16

If a firm experiences gains from specialization as it increases its scale of production,we would expect its long-run average cost curve to be

Accepted Answer

The presence of gains from specialization leads to a downward-sloping long-run average cost curve (LRAC) as the firm produces more. Specialization results in a more efficient use of resources and enables the firm to take advantage of economies of scale, which lowers the firm's average cost of production. Thus, as the firm's output increases, the LRAC decreases.

Question 17

Timothy owns a landscaping company.If he increases the size of his company and experiences constant returns to scale as a result,his long-run average total cost curve should be

Accepted Answer

Constant returns to scale mean that increasing the size of the company results in a proportional increase in output without a change in long-run average total cost. This implies that the long-run average total cost curve is horizontal, indicating that the company can produce any level of output at the same average cost.

Question 18

Explain what would happen to a graphed production function if the firm used more automation.

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Question 19

How will a firm know when it has reached its minimum efficient scale of production?

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Question 20

Quinn owns a DVD store.Give some examples of Quinn's fixed costs for the store.

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Quiz 8: Business Costs and Production