Question 1

Constant returns to scale means that long-run:

Accepted Answer

A) ATC increases as output increases. 
B) ATC decreases as output decreases. 
C) ATC rises and then falls as output increases. 
D) ATC does not change as output increases. 
A) ATC increases as output increases. 
B) ATC decreases as output decreases. 
C) ATC rises and then falls as output increases. 
D) ATC does not change as output increases. D

Question 2

A technically efficient method of production produces a given level of output at the lowest possible cost.

Accepted Answer

A) True 
 B)False  False

Question 3

Which of the following provides the best explanation for diseconomies of scale?

Accepted Answer

A) The presence of fixed inputs 
B) Reduced monitoring costs 
C) Loss of team spirit 
D) Indivisible setup costs 
A) The presence of fixed inputs 
B) Reduced monitoring costs 
C) Loss of team spirit 
D) Indivisible setup costs C

Question 4

Because there are very significant economies of scale involved in making flat screen television sets in a competitive market, the price of flat screen TVs will:

Accepted Answer

A) fall as output expands because long-run average total costs are lower for higher quantities. 
B) rise because the long run average total cost curve is upward-sloping over the entire range of output. 
C) rise because of the combination of stronger demand and higher production costs. 
D) stay exactly the same regardless of any shifts in the demand curve. 
A) fall as output expands because long-run average total costs are lower for higher quantities. 
B) rise because the long run average total cost curve is upward-sloping over the entire range of output. 
C) rise because of the combination of stronger demand and higher production costs. 
D) stay exactly the same regardless of any shifts in the demand curve.

Question 5

When per-unit costs increase as output increases, there are economies of scale in production.

Accepted Answer

A) True 
 B)False

Question 6

Long-run average costs at any output level will:

Accepted Answer

A) always be less than or equal to short-run average total costs. 
B) always be greater than or equal to short-run average total costs. 
C) always be equal to short-run average total costs. 
D) sometimes be less than and sometimes greater than short-run average total costs. 
A) always be less than or equal to short-run average total costs. 
B) always be greater than or equal to short-run average total costs. 
C) always be equal to short-run average total costs. 
D) sometimes be less than and sometimes greater than short-run average total costs.

Question 7

If the demand for flat screen television sets is rising while at the same time the price of a flat screen TV is falling, there is evidence of:

Accepted Answer

A) economies of scale. 
B) diseconomies of scale. 
C) constant returns to scale. 
D) diminishing marginal product. 
A) economies of scale. 
B) diseconomies of scale. 
C) constant returns to scale. 
D) diminishing marginal product.

Question 8

What are economies of scale? How do economies and diseconomies of scale influence the shape of the long run cost curves? How do economies of scale relate to indivisible setup costs? What are diseconomies of scale and how do they arise?

Accepted Answer

Economies of scale relate to the greater

Question 9

What is the envelope relationship?

Accepted Answer

The envelope relationship is the relatio

Question 10

If all production relationships were technical relationships,there wouldn't be diminishing marginal productivity.Evaluate this statement.

Accepted Answer

The statement is false.It mixe

Question 11

What cost considerations other than "how much to produce" do real world firms face? Give some examples.

Accepted Answer

Simple economic models focus on the quan

Question 12

The marginal rate of substitution of an isoquant curve is the rate at which:

Accepted Answer

A) inputs must be substituted for one another to keep costs constant. 
B) inputs are substituted for output. 
C) inputs must be substituted for one another to keep output constant. 
D) the marginal productivity of a factor declines. 
A) inputs must be substituted for one another to keep costs constant. 
B) inputs are substituted for output. 
C) inputs must be substituted for one another to keep output constant. 
D) the marginal productivity of a factor declines.

Question 13

In this problem you will demonstrate your understanding of the relationship between short-run and long run average cost curves.
(a)Draw an example of a long-run average cost curve.Find the minimum point of the long run average cost curve and label that point "A" for reference.What is the slope of the LRATC curve to the left of point A? Why does it have this slope? What is the slope of the LRATC curve to the right of point A? Why does it have this slope?
(b)Choose a point to the left of point A on the LRATC curve,and label it point B for reference.Choose a point to the right of point A on the LRATC curve.Label it point C for reference.Draw the SRATC curve associated with point A and label it SRATCa.Is point A the minimum point of SRATCa? Why does SRATCa have the slope that it does at points to the left and right of point A?
(c)Draw SRATC curves associated with points B and C and label them SRATCb and SRATCc.Are points B and C minimum points for SRATCb and SRATCc? Explain.

Accepted Answer

See the graph below.
(a)Points to the le

Question 14

Refer to the graph shown. If a firm expected to produce 300 units when it built its plant but now desires to expand its output to 500 units in the short run, it will use the plant size represented by:

Accepted Answer

A) SATC1. 
B) SATC2. 
C) SATC3. 
D) SATC4. 
A) SATC1. 
B) SATC2. 
C) SATC3. 
D) SATC4.

Question 15

In the basic model,cost changes only as output changes.In the real world,at least four other factors affect real-world costs.They are: (1)economies of scope, (2)learning by doing and technological change, (3)multidimensionality,and (4)unmeasured costs.Explain how each of these influences cost analysis.

Accepted Answer

(1)Economies of scope occur when costs a

Question 16

An entrepreneur probably will start a business if she sees an opportunity to sell an item at a price:

Accepted Answer

A) higher than the average total cost of producing it. 
B) equal to the competitors' price. 
C) less than the competitors' price. 
D) equal to the average total cost of producing it. 
A) higher than the average total cost of producing it. 
B) equal to the competitors' price. 
C) less than the competitors' price. 
D) equal to the average total cost of producing it.

Question 17

Refer to the graph shown. The output range in region c is associated with:

Accepted Answer

A) diminishing marginal productivity. 
B) constant returns to scale. 
C) economies of scale. 
D) diseconomies of scale. 
A) diminishing marginal productivity. 
B) constant returns to scale. 
C) economies of scale. 
D) diseconomies of scale.

Question 18

In the simple microeconomic models,the only dimension over which variation takes place is level of output (TC,AC,and MC curves,for example,relate these costs to the level of output only).Are there other important dimensions over which entrepreneurs may chose in the real world? Give some examples of other dimensions over which important choices may be made.

Accepted Answer

In the real world choice is typically mu

Question 19

The long-run average cost of producing 19 units of output is $56, and the long-run average cost of producing 20 units is also $56. These numbers illustrate:

Accepted Answer

A) decreasing marginal productivity. 
B) constant returns to scale. 
C) economies of scale. 
D) diseconomies of scale. 
A) decreasing marginal productivity. 
B) constant returns to scale. 
C) economies of scale. 
D) diseconomies of scale.

Question 20

Refer to the graph shown. The shift from SATC3 to SATC4 reflects:

Accepted Answer

A) economies of scale. 
B) diseconomies of scale. 
C) diminishing marginal productivity. 
D) increasing marginal productivity. 
A) economies of scale. 
B) diseconomies of scale. 
C) diminishing marginal productivity. 
D) increasing marginal productivity.

Exam 12: Production and Cost Analysis II

Constant returns to scale means that long-run:

A technically efficient method of production produces a given level of output at the lowest possible cost.

Which of the following provides the best explanation for diseconomies of scale?

Because there are very significant economies of scale involved in making flat screen television sets in a competitive market, the price of flat screen TVs will:

When per-unit costs increase as output increases, there are economies of scale in production.

Long-run average costs at any output level will:

If the demand for flat screen television sets is rising while at the same time the price of a flat screen TV is falling, there is evidence of:

What are economies of scale? How do economies and diseconomies of scale influence the shape of the long run cost curves? How do economies of scale relate to indivisible setup costs? What are diseconomies of scale and how do they arise?

What is the envelope relationship?

If all production relationships were technical relationships,there wouldn't be diminishing marginal productivity.Evaluate this statement.

What cost considerations other than "how much to produce" do real world firms face? Give some examples.

The marginal rate of substitution of an isoquant curve is the rate at which:

Refer to the graph shown. If a firm expected to produce 300 units when it built its plant but now desires to expand its output to 500 units in the short run, it will use the plant size represented by:

An entrepreneur probably will start a business if she sees an opportunity to sell an item at a price:

Refer to the graph shown. The output range in region c is associated with:

The long-run average cost of producing 19 units of output is $56, and the long-run average cost of producing 20 units is also $56. These numbers illustrate:

Refer to the graph shown. The shift from SATC3 to SATC4 reflects:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Keynesian Short-Run Policy Model: Demand-Side Policies

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

Filters

Refer to the graph shown. The shift from SATC₃ to SATC₄ reflects: