Question 1

Assume that as a firm expands its scale of operation, the minimum point of its short-run average total cost curve is unchanged. In this case, we would say that the firm is experiencing diseconomies of scale.

Accepted Answer

A) True 
 B)False

Question 2

In the long-run production function, all of the inputs to the production process are allowed to vary.

Accepted Answer

A) True 
 B)False

Question 3

An improvement in technology would cause each of the isoquants in a firm's isoquant map to shift out away from the origin.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements about the beer industry is correct?

Accepted Answer

A)   Over the last 30 years, technological change has resulted in substantial diseconomies of scale in the industry.
B)   In 2000, the minimum efficient scale in the industry was approximately 18 million barrels per year.
C)   As a result of an increase in the number of microbreweries, the five largest firms in the industry control less than 50 percent of the market.
D)   The market share of microbreweries was estimated to be 20 percent in 1990.

Question 5

Failure to account for the increased transportation costs that would result from building fewer and more centrally located production facilities could result in firm managers selecting a scale of operation that is larger than the optimum.

Accepted Answer

A) True 
 B)False

Question 6

A production method that relies on large quantities of machines and equipment and smaller quantities of labor is referred to as a:

Accepted Answer

A)   variable-input-intensive method of production.
B)   labor-intensive method of production.
C)   technology -intensive method of production
D)   capital-intensive method of production.

Question 7

The marginal rate of technical substitution MRTS)  along an isoquant:

Accepted Answer

A)   is equal to the price ratio at all points along an isoquant.
B)   is equal to the ratio of the marginal utilities of the two goods.
C)   is equal to the ratio of the marginal products of the two inputs.
D)   remains constant as we alter the combinations of the two inputs.

Question 8

Labor resistance can be a major impediment to increased productivity in many firms.

Accepted Answer

A) True 
 B)False

Question 9

Empirical evidence suggests that economies of scale, advertising and image differentiation, and risk spreading all help account for the large-scale production that exists in many sectors of the economy.

Accepted Answer

A) True 
 B)False

Question 10

Regarding the production of health care, more recent studies suggest that economies of scale exist up to a hospital size of approximately 200 beds.

Accepted Answer

A) True 
 B)False

Question 11

Assume a new technology is developed that increases the productivity of capital and creates additional economies of scale. How would this affect the firm's minimum efficient scale of operation. Illustrate this effect graphically.

Accepted Answer

The increase in the productivity of capi...

Question 12

The negatively-sloped part of the long-run average total cost curve is due to which of the following?

Accepted Answer

A)   Diseconomies of scale.
B)   Diminishing returns.
C)   The difficulties encountered in coordinating the many activities of a large firm.
D)   The increase in productivity that results from specialization.

Question 13

Long-run average cost is defined as:

Accepted Answer

A)   the minimum average cost of producing any level of output when all inputs are variable.
B)   the minimum average cost of producing any level of output when the amount of capital is varied and all other inputs are held constant.
C)   the average of the short-run costs associated with each amount of capital employed by the firm.
D)   the minimum average cost of producing any level of output when all inputs are fixed.

Question 14

Explain why X-inefficiency is likely to be more prevalent in an industry in which firms have market power.

Accepted Answer

The assumed goal of firms is to maximize...

Question 15

In which of the following situations would the minimum efficient scale of operation provide little or no guidance regarding how many firms should serve the market to minimize production costs?

Accepted Answer

A)   When the LRAC curve slopes downward over the relevant range of output.
B)   When the LRAC curve hits its minimum point at a relatively low level of output and then increases and the demand for output is quite large.
C)   When the LRAC curve hits its minimum point at a relatively low level of output but then remains constant as the scale of operation is increased and the demand for output is quite large.
D)   When the LRAC curve initially increases and then decreases beyond some point.

Question 16

Economists describe short-run decisions as "constrained" decisions, while long-run decisions are described as "planning" decisions. Referring to a firm's short-run average cost function and long-run average cost function, explain this distinction.

Accepted Answer

In the short run, at least one of the in...

Question 17

Which of the following is not cited as one of the factors that accounts for the large-scale production that exists in many sectors of the economy?

Accepted Answer

A)   Economies of scale.
B)   Advertising and image differentiation.
C)   The minimum efficient scale of operation in many industries is quite high relative to market demand.
D)   Risk spreading.

Question 18

In the long-run average cost function, only the amount of capital is allowed to vary.

Accepted Answer

A) True 
 B)False

Question 19

Historically, empirical evidence showed that it was more cost effective to have a single generator of electricity serve a particular region's electricity needs than to have several smaller units compete against each other. More recently, technological advances have occurred in the generation of electricity that allow much smaller generating units to produce electricity for the same average cost as much larger units. Explain how this change would be reflected in the firm's long-run average cost curve and minimum efficient scale.

Accepted Answer

Historically, the production of electric...

Question 20

Explain how labor resistance and political and legislative influences reduce the ability of firms to minimize their costs of production. What do the two have in common in this regard?

Accepted Answer

Both labor resistance and political and ...

Exam 6: Production and Cost Analysis in the Long Run

An improvement in technology would cause each of the isoquants in a firm's isoquant map to shift out away from the origin.

Correct Answer
verified

In the long-run production function, all of the inputs to the production process are allowed to vary.

Correct Answer
verified

Economists describe short-run decisions as "constrained" decisions, while long-run decisions are described as "planning" decisions. Referring to a firm's short-run average cost function and long-run average cost function, explain this distinction.

Correct Answer
verified
In the short run, at least one of the in...
View Answer

Empirical evidence suggests that economies of scale, advertising and image differentiation, and risk spreading all help account for the large-scale production that exists in many sectors of the economy.

Correct Answer
verified

Which of the following statements about the beer industry is correct?

Correct Answer
verified

Explain why X-inefficiency is likely to be more prevalent in an industry in which firms have market power.

Correct Answer
verified
The assumed goal of firms is to maximize...
View Answer

The negatively-sloped part of the long-run average total cost curve is due to which of the following?

Correct Answer
verified

The marginal rate of technical substitution MRTS) along an isoquant:

Correct Answer
verified

Labor resistance can be a major impediment to increased productivity in many firms.

Correct Answer
verified

Explain how labor resistance and political and legislative influences reduce the ability of firms to minimize their costs of production. What do the two have in common in this regard?

Correct Answer
verified
Both labor resistance and political and ...
View Answer

In the long-run average cost function, only the amount of capital is allowed to vary.

Correct Answer
verified

Which of the following is not cited as one of the factors that accounts for the large-scale production that exists in many sectors of the economy?

Correct Answer
verified

A production method that relies on large quantities of machines and equipment and smaller quantities of labor is referred to as a:

Correct Answer
verified

Assume that as a firm expands its scale of operation, the minimum point of its short-run average total cost curve is unchanged. In this case, we would say that the firm is experiencing diseconomies of scale.

Correct Answer
verified

Correct Answer
verified
Historically, the production of electric...
View Answer

Regarding the production of health care, more recent studies suggest that economies of scale exist up to a hospital size of approximately 200 beds.

Correct Answer
verified

Assume a new technology is developed that increases the productivity of capital and creates additional economies of scale. How would this affect the firm's minimum efficient scale of operation. Illustrate this effect graphically.

Correct Answer
verified
The increase in the productivity of capi...
View Answer

Long-run average cost is defined as:

Correct Answer
verified

Failure to account for the increased transportation costs that would result from building fewer and more centrally located production facilities could result in firm managers selecting a scale of operation that is larger than the optimum.

Correct Answer
verified

In which of the following situations would the minimum efficient scale of operation provide little or no guidance regarding how many firms should serve the market to minimize production costs?

Correct Answer
verified

Exam 6: Production and Cost Analysis in the Long Run

An improvement in technology would cause each of the isoquants in a firm's isoquant map to shift out away from the origin.

Correct AnswerverifiedShow Answer

In the long-run production function, all of the inputs to the production process are allowed to vary.

Correct AnswerverifiedShow Answer

Economists describe short-run decisions as "constrained" decisions, while long-run decisions are described as "planning" decisions. Referring to a firm's short-run average cost function and long-run average cost function, explain this distinction.

Correct AnswerverifiedIn the short run, at least one of the in...View AnswerShow Answer

Empirical evidence suggests that economies of scale, advertising and image differentiation, and risk spreading all help account for the large-scale production that exists in many sectors of the economy.

Correct AnswerverifiedShow Answer

Which of the following statements about the beer industry is correct?

Correct AnswerverifiedShow Answer

Explain why X-inefficiency is likely to be more prevalent in an industry in which firms have market power.

Correct AnswerverifiedThe assumed goal of firms is to maximize...View AnswerShow Answer

The negatively-sloped part of the long-run average total cost curve is due to which of the following?

Correct AnswerverifiedShow Answer

The marginal rate of technical substitution MRTS) along an isoquant:

Correct AnswerverifiedShow Answer

Labor resistance can be a major impediment to increased productivity in many firms.

Correct AnswerverifiedShow Answer

Explain how labor resistance and political and legislative influences reduce the ability of firms to minimize their costs of production. What do the two have in common in this regard?

Correct AnswerverifiedBoth labor resistance and political and ...View AnswerShow Answer

In the long-run average cost function, only the amount of capital is allowed to vary.

Correct AnswerverifiedShow Answer

Which of the following is not cited as one of the factors that accounts for the large-scale production that exists in many sectors of the economy?

Correct AnswerverifiedShow Answer

A production method that relies on large quantities of machines and equipment and smaller quantities of labor is referred to as a:

Correct AnswerverifiedShow Answer

Assume that as a firm expands its scale of operation, the minimum point of its short-run average total cost curve is unchanged. In this case, we would say that the firm is experiencing diseconomies of scale.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedHistorically, the production of electric...View AnswerShow Answer

Regarding the production of health care, more recent studies suggest that economies of scale exist up to a hospital size of approximately 200 beds.

Correct AnswerverifiedShow Answer

Assume a new technology is developed that increases the productivity of capital and creates additional economies of scale. How would this affect the firm's minimum efficient scale of operation. Illustrate this effect graphically.

Correct AnswerverifiedThe increase in the productivity of capi...View AnswerShow Answer

Long-run average cost is defined as:

Correct AnswerverifiedShow Answer

Failure to account for the increased transportation costs that would result from building fewer and more centrally located production facilities could result in firm managers selecting a scale of operation that is larger than the optimum.

Correct AnswerverifiedShow Answer

In which of the following situations would the minimum efficient scale of operation provide little or no guidance regarding how many firms should serve the market to minimize production costs?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
In the short run, at least one of the in...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The assumed goal of firms is to maximize...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Both labor resistance and political and ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Historically, the production of electric...
View Answer

Correct Answer
verified

Correct Answer
verified
The increase in the productivity of capi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified