question
If the long-run average cost curve has a ___________, competing firms that produce at minimum costs will have to produce the same exact quantity of output.
answer
clear minimum point
When the LRAC curve has a clear minimum point, any firm that produces a different quantity from that minimum will have higher costs. All firms who choose to produce at the minimum cost will produce the same output.
When the LRAC curve has a clear minimum point, any firm that produces a different quantity from that minimum will have higher costs. All firms who choose to produce at the minimum cost will produce the same output.
question
As output increases, a firm experiencing diseconomies of scale will see the long-run average cost (LRAC) curve ___________.
answer
increasing
By definition, diseconomies of scale occur when LRAC increases as the firm expands its output.
By definition, diseconomies of scale occur when LRAC increases as the firm expands its output.
question
True or false?
Constant returns to scale occur when the long-run average cost of producing each individual unit increases as total output increases.
Constant returns to scale occur when the long-run average cost of producing each individual unit increases as total output increases.
answer
False
Constant returns to scale happens when expanding all inputs proportionately does not change the average cost of production.
Constant returns to scale happens when expanding all inputs proportionately does not change the average cost of production.
question
A retail establishment has determined that their lowest total cost production technology is $680. If machines cost $60 and the company has determined that the combination of 6 machines and 8 workers yields the lowest total cost of production, what is the cost of each worker?
answer
$40
The firm has determined the lowest cost of technology to be 680 and has decided to use 6 machines and 8 workers. Therefore,
$680=(# of workers × cost of workers) + ( # of machines × $60)
$680= (8 × cost of workers) + (6 × $60)
$320 = 8 × cost of workers
$320/8= $40
The firm has determined the lowest cost of technology to be 680 and has decided to use 6 machines and 8 workers. Therefore,
$680=(# of workers × cost of workers) + ( # of machines × $60)
$680= (8 × cost of workers) + (6 × $60)
$320 = 8 × cost of workers
$320/8= $40
question
A firm was producing 20,000 units of output at the total cost of $40,000. It now produces 30,000 units and the corresponding total cost is $50,000. This firm is experiencing ____________________.
answer
economies of scale
Economies of scale occur when the long-run average cost of producing each individual unit decreases as total output increases. The average cost of producing 20,000 units is $40,000/20,000 = $2 per unit, while the average cost of producing 30,000 units is $50,000/30,000 = $1.67 per unit. Since the average cost of production is declining with an increase in output, this situation is economies of scale.
Economies of scale occur when the long-run average cost of producing each individual unit decreases as total output increases. The average cost of producing 20,000 units is $40,000/20,000 = $2 per unit, while the average cost of producing 30,000 units is $50,000/30,000 = $1.67 per unit. Since the average cost of production is declining with an increase in output, this situation is economies of scale.
question
Economies of scale occur when a firm's long-run average total cost curve is ___________________.
answer
downward sloping
Economies of scale is associated with decreasing average cost of production as output produced increases. Graphically, it would result in a downward sloping long-run average cost curve.
Economies of scale is associated with decreasing average cost of production as output produced increases. Graphically, it would result in a downward sloping long-run average cost curve.
question
Which description best fits the definition of diseconomies of scale?
answer
the situation in which the long-run average cost of producing each individual unit increases as total output increases
By definition, diseconomies of scale occur when the long-run average cost of producing each individual unit increases as total output increases.
By definition, diseconomies of scale occur when the long-run average cost of producing each individual unit increases as total output increases.
question
True or false?
A firm competing in a market where the LRAC curve has a clear minimum point has flexibility in its output.
A firm competing in a market where the LRAC curve has a clear minimum point has flexibility in its output.
answer
False
When the LRAC curve has a clear minimum point, any firm that produces a different quantity from that minimum will have higher costs.
When the LRAC curve has a clear minimum point, any firm that produces a different quantity from that minimum will have higher costs.
question
Each of the following production technologies produces the same quantity of output. Which of the following is the lowest-cost production technology if machines cost $50 and workers cost $70?
answer
4 workers, 7 machines
Find the cost of each production technology by multiplying each worker or machine by its cost and adding these values together. The lowest-cost production technology is 4 workers and 7 machines with a total cost of $630.
Find the cost of each production technology by multiplying each worker or machine by its cost and adding these values together. The lowest-cost production technology is 4 workers and 7 machines with a total cost of $630.
question
Different production technologies are possible because ___________________.
answer
machines and labor are somewhat substitutable
Machines and labor are substitutable for some tasks, but are not perfect substitutes.
Machines and labor are substitutable for some tasks, but are not perfect substitutes.
question
In which of the following scenarios will economies of scale occur?
answer
when the LRATC decreases as quantity increases
Economies of scale refers to the situation where, as the quantity of output goes up, the cost per unit goes down. The economies of scale curve is a long-run average cost curve, because it allows all factors of production to change. As long-run average cost is decreasing and quantity is increasing, economies of scale are occurring.
Economies of scale refers to the situation where, as the quantity of output goes up, the cost per unit goes down. The economies of scale curve is a long-run average cost curve, because it allows all factors of production to change. As long-run average cost is decreasing and quantity is increasing, economies of scale are occurring.
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