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1. One assumption that distinguishes short-run cost analysis from long-run cost analysis for a profit-maximizing firm is
that in the short run,
a.
output is not variable.
b.
the number of workers used to produce the firm's product is fixed.
c.
the size of the factory is fixed.
d.
there are no fixed costs.
2. The nature of a firm’s cost (fixed or variable) depends on the
a.
firm’s revenues.
b.
time horizon under consideration.
c.
price the firm charges for output.
d.
explicit but not implicit costs.
3. When a factory is operating in the short run,
a.
it cannot alter variable costs.
b.
total cost and variable cost are usually the same.
c.
average fixed cost rises as output increases.
d.
it cannot adjust the quantity of fixed inputs.
4. The length of the short run
a.
is different for different types of firms.
b.
can never exceed 3 years.
c.
can never exceed 1 year.
d.
is always less than 6 months.
5. How long does it take a firm to go from the short run to the long run?
a.
six months
b.
one year
c.
two years
d.
It depends on the nature of the firm.
6. A local playground equipment company plans to operate out of its current factory, which is estimated to last 30 years.
All cost decisions it makes during the 30-year period
a.
are long-run decisions.
b.
are short-run decisions.
c.
involve only maintenance of the factory.
d.
are zero because the cost decisions were made at the beginning of the business.
7. In the short run, a firm that produces and sells house paint can adjust
a.
where to produce along its long-run average-total-cost curve.
b.
the size of its factories.
c.
how many workers to hire.
d.
All of the above are correct.
8. The total cost to the firm of producing zero units of output is
a.
zero in both the short run and the long run.
b.
its fixed cost in the short run and zero in the long run.
c.
its fixed cost in both the short run and the long run.
d.
its variable cost in both the short run and the long run.
9. In the long run, a firm that produces and sells textbooks gets to choose
a.
how many workers to hire.
b.
the size of its factories.
c.
which short-run average-total-cost curve to use.
d.
All of the above are correct.
10. A firm that produces and sells furniture gets to choose
a.
how many workers to hire in both the short run and the long run.
b.
the size of its factories in the short run but not in the long run.
c.
which short-run average-total-cost curve to use in both the short tun and the long run.
d.
All of the above are correct.
11. In the long run,
a.
inputs that were fixed in the short run remain fixed.
b.
inputs that were fixed in the short run become variable.
c.
inputs that were variable in the short run become fixed.
d.
variable inputs are rarely used.
12. The long-run average total cost curve is always
a.
flatter than the short-run average total cost curve, but not necessarily horizontal.
b.
horizontal.
c.
falling as output increases.
d.
rising as output increases.
13. When comparing short-run average total cost with long-run average total cost at a given level of output,
a.
short-run average total cost is typically above long-run average total cost.
b.
short-run average total cost is typically the same as long-run average total cost.
c.
short-run average total cost is typically below long-run average total cost.
d.
the relationship between short-run and long-run average total cost follows no clear pattern.
14. Which of the following explains why long-run average cost at first decreases as output increases?
a.
diseconomies of scale
b.
less-efficient use of inputs
c.
fixed costs becoming spread out over more units of output
d.
gains from specialization of inputs
15. The most likely explanation for economies of scale is
a.
coordination problems.
b.
specialization of labor.
c.
increasing marginal cost.
d.
decreasing marginal cost.
16. When a firm is experiencing economies of scale, long-run
a.
average total cost is minimized.
b.
average total cost is greater than long-run marginal cost.
c.
average total cost is less than long-run marginal cost.
d.
marginal cost is minimized.
17. Economies of scale occur when a firm’s
a.
marginal costs are constant as output increases.
b.
long-run average total costs are decreasing as output increases.
c.
long-run average total costs are increasing as output increases.
d.
marginal costs are equal to average total costs for all levels of output.
18. Economies of scale occur when
a.
long-run average total costs rise as output increases.
b.
long-run average total costs fall as output increases.
c.
average fixed costs are falling.
d.
average fixed costs are constant.
19. A firm that wants to achieve economies of scale could do so by
a.
assigning limited tasks to its employees, so they can master those tasks.
b.
employing a smaller number of workers.
c.
producing a smaller quantity of output.
d.
producing an output level higher than the efficient scale.
20. Economies of scale arise when
a.
an economy is self-sufficient in production.
b.
individuals in a society are self-sufficient.
c.
fixed costs are large relative to variable costs.
d.
workers are able to specialize in a particular task.
21. If long-run average total cost decreases as the quantity of output increases, the firm is experiencing
a.
economies of scale.
b.
diseconomies of scale.
c.
coordination problems arising from the large size of the firm.
d.
fixed costs greatly exceeding variable costs.
22. In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and
$1,200 when output is 120 canisters. The popcorn company exhibits
a.
diseconomies of scale because total cost is rising as output rises.
b.
diseconomies of scale because average total cost is rising as output rises.
c.
economies of scale because total cost is rising as output rises.
d.
economies of scale because average total cost is falling as output rises.
23. In the long run a company that produces and sells candy bars incurs total costs of $1,200 when output is 2,400 candy
bars and $1,400 when output is 2,900 candy bars. The candy bar company exhibits
a.
diseconomies of scale because total cost is rising as output rises.
b.
diseconomies of scale because average total cost is rising as output rises.
c.
economies of scale because total cost is rising as output rises.
d.
economies of scale because average total cost is falling as output rises.
24. Suppose that a firm’s long-run average total costs of producing televisions decreases as it produces between 10,000
and 20,000 televisions. For this range of output, the firm is experiencing
a.
economies of scale.
b.
constant returns to scale.
c.
diseconomies of scale.
d.
coordination problems.
25. Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in
large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually
outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like
the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that
a.
consumers do not react to changing prices.
b.
there are diseconomies of scale in retail sales.
c.
there are economies of scale in retail sales.
d.
there are diminishing returns to producing and selling retail goods.
26. Which of the following statements is not correct?
a.
In the long run, there are no fixed costs.
b.
Marginal cost is independent of fixed costs.
c.
Economies of scale is a short-run concept.
d.
Diminishing marginal product explains increasing marginal cost.
27. In the long run a company that produces and sells laundry detergent incurs total costs of $2,500 when output is 1,250
units and $2,750 when output is 1,500 units. For this range of output, the laundry detergent company exhibits
a.
economies of scale.
b.
constant returns to scale.
c.
diseconomies of scale.
d.
efficient scale.
28. At low levels of production, the firm
a.
benefits from increased size because it can take advantage of greater specialization.
b.
has the potential for economies of scale.
c.
is unlikely to experiences acute problems with coordination.
d.
All of the above are correct.
29. The Big Blue Sky jet company has long-run total costs of $20 million if it produces 5 jets and long-run total costs of
$24 million if it produces 6 jets. The Big Blue Sky jet company is experiencing
a.
economies of scale.
b.
constant returns to scale.
c.
diseconomies of scale.
d.
negative profits.
30. When a firm experiences constant returns to scale,
a.
long-run average total cost is unchanged, even when output increases.
b.
long-run marginal cost is greater than long-run average total cost.
c.
long-run marginal cost is less than long-run average total cost.
d.
the firm is likely to experience coordination problems.
31. In the long run the local coffee shop incurs total costs of $625 when output is 1,250 cups of coffee and $750 when
output is 1,500 cups of coffee. For this range of output, the coffee shop exhibits
a.
economies of scale.
b.
constant returns to scale.
c.
diseconomies of scale.
d.
efficient scale.
32. Constant returns to scale occur when a firm’s
a.
marginal costs are constant as output increases.
b.
long-run average total costs are decreasing as output increases.
c.
long-run average total costs are increasing as output increases.
d.
long-run average total costs do not vary as output increases.
33. Constant returns to scale occur when the firm’s long-run
a.
total costs are constant as output increases.
b.
average total costs are constant as output increases.
c.
average cost curve is falling as output increases.
d.
average cost curve is rising as output increases.
34. If a firm experiences constant returns to scale at all output levels, then its long-run average total cost curve would
a.
slope downward.
b.
be horizontal.
c.
slope upward.
d.
slope downward for low output levels and upward for high output levels.
35. When a firm’s long-run average total costs do not vary as output increases, the firm exhibits
a.
economies of scale.
b.
constant returns to scale.
c.
diseconomies of scale.
d.
an efficient use of resources.
36. Suppose that a firm’s long-run average total costs of producing an individual income tax return is $75 when it
produces 1,000 returns and $75 when it produces 1,200 returns. For this range of output, the firm is experiencing
a.
economies of scale.
b.
constant returns to scale.
c.
diseconomies of scale.
d.
specialization.
37. In the long run a company that produces and sells dog beds incurs total costs of $1,200 when output is 30 beds and
$1,600 when output is 40 beds. Firm A exhibits
a.
diseconomies of scale because total cost is rising as output rises.
b.
constant returns to scale because average total cost is constant as output rises.
c.
diseconomies of scale because average total cost is rising as output rises.
d.
economies of scale because average total cost is falling as output rises.
38. In the long run a company that produces and sells kayaks incurs total costs of $15,000 when output is 30 kayaks and
$20,000 when output is 40 kayaks. The kayak company exhibits
a.
diseconomies of scale because total cost is rising as output rises.
b.
constant returns to scale because average total cost is constant as output rises.
c.
diseconomies of scale because average total cost is rising as output rises.
d.
economies of scale because average total cost is falling as output rises.
39. When a firm experiences diseconomies of scale,
a.
short-run average total cost is minimized.
b.
long-run average total cost is minimized.
c.
long-run average total cost increases as output increases.
d.
long-run average total cost decreases as output increases.
40. When a firm is experiencing diseconomies of scale, long-run
a.
average total cost is minimized.
b.
average total cost is greater than long-run marginal cost.
c.
average total cost is less than long-run marginal cost.
d.
marginal cost is minimized.
