9.2 Long-Run Costs: Economies and Diseconomies of Scale
1) In the short run average costs eventually increase because of ________, and in the long run average costs eventually increase because of ________.
A) diminishing returns; diseconomies of scale
B) diseconomies of scale; diminishing returns
C) constant returns to scale; decreasing returns to scale
D) increasing returns to scale; diseconomies of scale
2) Engineers for the Off Road Skateboard Company have determined that a 10% increase in all inputs will cause output to increase by 5%. Assuming that input prices remain constant, you correctly deduce that such a change will cause ________ as output increases.
A) total cost to decrease
B) average costs to increase
C) average costs to decrease
D) average fixed costs to increase
3) Engineers for The All-Terrain Bike Company have determined that a 15% increase in all inputs will cause a 15% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause ________ as output increases.
A) average costs to increase
B) average costs to decrease
C) average costs to remain constant
D) marginal costs to increase
4) Engineers for The Giffen Record Company have determined that a 35% increase in all compact disc inputs will cause a 45% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause ________ as output increases.
A) average costs to increase
B) average costs to decrease
C) average costs to remain constant
D) marginal costs to increase
5) The shape of a firm’s ________ run average cost curve depends on how costs vary with ________.
A) short; scale of operations
B) short; no fixed factor of production
C) long; scale of operations
D) long; a fixed factor of production
6) For economies of scale, a(n) ________ in a firm’s scale of production leads to ________ average total cost.
A) increase; lower
B) increase; higher
C) decrease; lower
D) decrease; no change in
7) When an increase in the scale of production leads to higher average costs, the industry exhibits
A) diminishing returns.
B) increasing returns to scale.
C) decreasing returns to scale.
D) constant returns to scale.
8) When a decrease in the scale of production leads to higher average costs, the industry exhibits
A) diminishing returns.
B) increasing returns to scale.
C) decreasing returns to scale.
D) constant returns to scale.
9) Which of the following is an example of economies of scale?
A) As the computer industry has expanded, the number of professionally trained computer programmers has also increased, which has caused the salaries of computer programmers to increase.
B) To attract firms to locate in its state, the state government reduced the tax rate that businesses must pay on its profits, thus lowering the costs to firms who locate in the state.
C) A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases, the premium per person decreases substantially.
D) As the demand for calculators increased, the price of calculators actually fell.
10) Which of the following is an example of diseconomies of scale?
A) As the computer industry has expanded, demand for professionally trained computer programmers has also increased, which has caused the salaries of computer programmers to increase.
B) As a firm hires additional workers, each worker adds less to total output than the previous worker.
C) A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases, the premium per person decreases substantially.
D) As the demand for calculators decreased, the price of calculators actually rose.
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