Question 1

Which of the following is not a reason a supplier might seek to sell in bulk?

Accepted Answer

A)  Each sale incurs a fixed cost in writing a contract
B)  The purchaser is likely to switch over a small price due to the gains over the large number of units ordered
C)  Each sale involves setting up a different production run
D)  The cost of delivery is a fixed on a per unit basis
E)  The supplier fears uneven sales C

Question 2

Which of the following is a source of diseconomies of scale at a large firm?

Accepted Answer

A)  Labor costs
B)  Spreading specialized resources too thin
C)  Conflicts of interest
D)  Incentive processes
E)  All of the above E

Question 3

How does umbrella branding aid economies of scale and scope?

Accepted Answer

A)  Increases effectiveness of advertising due to a greater presence
B)  Increases effectiveness of advertising due to national advertising
C)  Increases effectiveness of advertising due to offering a broad product line under one name
D)  Increased cost effectiveness through purchasing as a cooperative
E)  Increased cost effectiveness through bulk purchasing C

Question 4

How does carrying inventories contribute to economies of scale?

Accepted Answer

A)  Increases the interest on the expenses to produce the inventory
B)  Inventory depreciates in value while waiting to be used or sold
C)  Increases the storage facilities necessary
D)  Increases competition with rivals for customers
E)  Minimizes the chance of stock-out

Question 5

What is the approximate observed median learning curve slope for typical firms?

Accepted Answer

A)  .6
B)  .7
C)  .8
D)  .9
E)  1.0

Question 6

What term for production describes a situation where factories and assembly lines represent a significant percentage of total costs?

Accepted Answer

A)  Materials intensive
B)  Labor intensive
C)  Capital intensive
D)  Research intensive
E)  Time intensive

Question 7

Which of the following is not a major source of scale or scope economy?

Accepted Answer

A)  Indivisibilities and the spreading of fixed costs
B)  Increased productivity of variable inputs (mainly having to do with specialization) 
C)  Movement of production from smaller to larger facilities
D)  Inventories
E)  Engineering principles associated with the "cube-square rule"

Question 8

Which of the following best describes economies of scope?

Accepted Answer

A)  The average cost declines as output increases
B)  The average cost increases as output increases
C)  The average cost remains constant as output increases
D)  Savings are achieved when a firm produces a wider variety of goods
E)  Savings are achieved when a firm produces a decreased variety of goods

Question 9

According to Smith's theorem,which of the following statements would be true in medical markets for thoracic surgery?

Accepted Answer

A)  When demand for thoracic surgery is high, the market will not support a specialized surgeon
B)  When demand for thoracic surgery is low, the market will not support a specialized surgeon
C)  The average cost curves for thoracic and general surgeons are both upward sloping
D)  The cost curve for a thoracic surgeon will start out lower than the cost curve for a general surgeon due to the greater investment of time
E)  General surgeons incur lower training costs than do thoracic surgeons and are thus more efficient in performing thoracic surgery

Question 10

What kind of economies come from reductions in cost due to adoption of technology that has high fixed costs,but lower variable costs?

Accepted Answer

A)  Short-run economies of scale
B)  Short-run economies of scope
C)  Long-run economies of scale
D)  Long-run economies of scope
E)  Partially automated economies

Question 11

Which of the following is a characteristic of economies of scale?

Accepted Answer

A)  The average cost declines as output increases
B)  The average cost increases as output increases
C)  The average cost remains constant as output increases
D)  The average costs are cheaper when a firm produces a wider variety of goods
E)  The average cost curve takes the form of a U-shape

Question 12

What kind of economies come from reductions in average costs due to increases in capacity utilization?

Accepted Answer

A)  Short-run economies of scale
B)  Short-run economies of scope
C)  Long-run economies of scale
D)  Long-run economies of scope
E)  Fully automated economies

Question 13

If a firm enjoys lower costs due to a complex labor-intensive process,which of the following statements would then be true?

Accepted Answer

A)  Cutbacks in volume will always raise unit costs
B)  The firm is unconcerned with labor turnover
C)  An example of this process could be the practice of anti-trust law
D)  The firm's average cost rises due to moving down the learning curve
E)  The process is likely a repetitive manufacturing process such as two-piece aluminum can manufacturing

Question 14

Which of the following does not benefit from the cube-square rule's contribution to economies of scale?

Accepted Answer

A)  Automotive production
B)  Oil pipelines
C)  Warehousing
D)  Brewing beer
E)  Boiler energy production

Question 15

In the BCG Growth Share Matrix,what is a cash cow?

Accepted Answer

A)  A product in a growing market with high relative share
B)  A product in a stable or declining market with high relative share
C)  A product in a growing market with a low relative share
D)  A product in a stable or declining market with low relative share
E)  A product losing money for a company

Question 16

Which of the following is not a product specific fixed cost?

Accepted Answer

A)  The cost to manufacture a special die to make an aircraft fuselage
B)  The cost of developing graphics software to facilitate video game development
C)  The cost of a one-week training program preceding the implementation of a specific management initiative
D)  The time and expense required to set up a textbook before printing it
E)  The cost of administrative expenses

Question 17

By using instrumental variables,what was Ramanarayanan able to suggest regarding the learning curve?

Accepted Answer

A)  High quality surgeons receive more referrals and can be choosier with their patients thus experiencing better outcomes
B)  Surgeons who treat more patients after the retirement of a colleague experience better outcomes
C)  Surgeons who treat more patients after the retirement of a colleague experience the same outcomes
D)  Surgeons who treat more patients after the retirement of a colleague experience worse outcomes
E)  Each additional surgery performed by a surgeon increases the probability of patient mortality

Question 18

Suppose the cost of advertising in a local newspaper is $5 per thousand papers.If the circulation for the paper is 1.5 million and the cost of preparing an ad for a company is $2500,what is the advertising cost per potential customer?

Accepted Answer

The answer of Suppose the cost of advertising in a...

Question 19

What is the minimum efficient scale (MES)of production?

Accepted Answer

A)  The point on an average cost curve where the cost per unit begins to decline more rapidly
B)  The minimum point on a U-shaped average cost curve
C)  The minimum level of production at a plant for it to be considered profitable
D)  The level of production for a small sized plant
E)  The threshold at which capacity is constraining for a firm's production

Question 20

Which of the following practices does not contribute to the strategic fit of Southwest Airlines?

Accepted Answer

A)  No in-flight catering
B)  Use of multiple types of planes
C)  No use of congested airports
D)  Re-engineered boarding process
E)  No first class section on plane

Exam 2: Economies of Scale and Scope