36) A decrease in long-run average costs resulting from increases in output is
A) attributed to economies of scale.
B) attributed to diseconomies to scale.
C) attributed to constant returns to scale.
D) attributed to the law of diminishing marginal product.
37) An increase in long-run average costs resulting from decreases in output is
A) attributed to the law of diminishing marginal product.
B) attributed to constant returns to scale.
C) attributed to economies of scale.
D) attributed to diseconomies to scale.
38) An increase in long-run average costs resulting from increases in output is
A) attributed to economies of scale.
B) attributed to diseconomies to scale.
C) attributed to constant returns to scale.
D) attributed to the law of diminishing marginal product.
39) A decrease in long-run average costs resulting from decreases in output is
A) attributed to constant returns to scale.
B) attributed to economies of scale.
C) attributed to the law of diminishing marginal product.
D) attributed to diseconomies to scale.
40) An increase in output would result in no change in long-run average costs when there are
A) economies of scale.
B) diseconomies to scale.
C) constant returns to scale.
D) diminishing marginal product.
41) An increase in output would result in a rise in long-run average costs when there are
A) economies of scale.
B) diseconomies to scale.
C) constant returns to scale.
D) the law of diminishing marginal product.
42) Constant returns to scale are illustrated by
A) a downward sloping long-run average cost curve.
B) a horizontal long-run average cost curve.
C) an upward sloping long-run average cost curve.
D) a long-run average cost curve that is shaped like an upside down U.
43) Graphically, economies to scale are illustrated by
A) a downward sloping long-run average cost curve.
B) a horizontal long-run average cost curve.
C) an upward sloping long-run average cost curve.
D) a long-run average cost curve that is shaped like an upside down U.
44) Graphically, diseconomies to scale are illustrated by
A) a downward sloping long-run average cost curve.
B) a horizontal long-run average cost curve.
C) an upward sloping long-run average cost curve.
D) a long-run average cost curve that is shaped like an upside down U.
45) Increases in long-run average cost that result from output increases is
A) the law of diminishing marginal product.
B) economies of scale.
C) constant returns to scale.
D) diseconomies of scale.
46) Which of the following is NOT a reason why a firm may experience economies of scale?
A) productive specialization
B) dimensional factors
C) improved productive equipment
D) increased layers of management
47) The main source of diseconomies of scale is
A) dimensional factors associated with many physical relationships.
B) specialization of labor.
C) limits to the efficient functioning of management.
D) improvements in production technology.
48) Refer to the above figure. Economies of scale exist
A) over the entire range of output.
B) from output Q2 to Q5.
C) up to output Q2.
D) after output Q5.
49) Refer to the above figure. The firm that produces an output between Q1 to Q2 is
experiencing
A) constant returns to scale.
B) diseconomies of scale.
C) diminishing marginal product.
D) economies of scale.
50) Refer to the above figure. Diseconomies of scale exist
A) over the entire range of output.
B) from output Q2 to Q5.
C) up to output Q2.
D) after output Q5.
51) Refer to the above figure. Constant returns to scale exist
A) up to output Q2.
B) from Q2 to Q5.
C) after Q5.
D) over the entire long-run average cost curve.
52) A decrease in the long-run average costs resulting from increasing output is referred to as
A) diseconomies of scale.
B) constant return to scale.
C) a scale invariant process.
D) economies of scale.
53) When long-run average costs decline as output increases, the firm is experiencing
A) negative returns to scale.
B) diseconomies of scale.
C) constant returns to scale.
D) economies of scale.
54) When long-run average costs rise as output increases, the firm is experiencing
A) diseconomies of scale.
B) diminishing returns.
C) constant returns to scale.
D) economies of scale.
55) All of the following are reasons for economies of scale EXCEPT
A) diminishing marginal product.
B) specialization.
C) dimensional factors.
D) more efficient production equipment.
56) Which of the following statements is TRUE?
A) If a firm is experiencing economies of scale, diminishing marginal product has not set in yet.
B) No firm would ever operate at a level of output for which it experiences diseconomies of
scale.
C) A firm can experience diminishing marginal product and economies of scale at the same time.
D) Diseconomies of scale is a short-run concept, while economies of scale is a long-run concept.
57) In the above figure, point B is called
A) the maximum efficient scale.
B) the minimum efficient scale.
C) the planning horizon.
D) the point of diminishing marginal product.
58) A single-plant firm trying to select the rate of output consistent with an overall plant size that
yields the minimum efficient scale will choose a rate of output for which
A) the short-run marginal cost curve crosses the short-run average total cost curve at that rate of
output.
B) the long-run marginal cost curve crosses the long-run average fixed cost curve at that rate of
output.
C) long-run average total cost is lowest at that rate of output.
D) total fixed cots are minimized at that rate of output.
59) When a firm is at its minimum efficient scale of operation, it produces the
A) maximum rate of output at which long-run average cost is minimized.
B) minimum rate of output at which long-run average cost is minimized.
C) maximum rate of output consistent with lowest long-run marginal cost.
D) minimum rate of output consistent with lowest long-run marginal cost.
60) Minimum efficient scale is defined as
A) the lowest output level at which long-run average costs are at their minimum.
B) the amount of labor that maximizes the marginal product of labor.
C) the point at which marginal cost, average variable cost, and average fixed cost are all equal.
D) the point at which economies of scale are at their maximum.
61) If the long-run average cost curve continuously slopes upward as output rises, minimum
efficient scale would be
A) zero.
B) at the midpoint of the long-run average cost curve.
C) at the rate of output associated with the smallest sized plant the firm can build.
D) nonexistent.
62) Refer to the above figure. Minimum efficient scale is at output rate
A) Q1.
B) Q2.
C) Q3.
D) Q5.
63) Minimum efficient scale
A) is the point at which economies of scale begin for a particular firm.
B) is the lowest rate of output per unit of time at which long-run average costs reach a minimum
for a particular firm.
C) applies only to firms with U-shaped long-run average cost curves.
D) is the point at which diseconomies of scale begin for a particular firm.
64) The lowest rate of output per unit of time at which long-run average costs for a particular
firm are at a minimum is
A) economies of scale.
B) diseconomies of scale.
C) constant returns of scale.
D) minimum efficient scale.
65) When the minimum efficient scale occurs at a high level of industry output
A) the firms in the industry will be producing in the diseconomies of scale portion of the curve.
B) there will only be a few firms in the industry.
C) the government will have to take over the production of the good since it will be unprofitable
for firms.
D) there will be a lot of firms in this industry.
66) The lowest rate of output per unit of time at which long-run average costs for a firm are at a
minimum defines
A) maximum efficient scale.
B) minimum efficient scale.
C) allowable efficient scale.
D) short-run efficient scale.
67) The minimum efficient scale in the figure below shows that
A) point A is the minimum efficient scale (MES) for the firm.
B) point B is the minimum efficient scale (MES) for the firm.
C) the long-run average cost curve (LAC) reaches a minimum point at B.
D) the minimum efficient scale (MES) illustrates maximum average costs.
68) Explain how the long-run average cost curve is constructed graphically.
69) How is the long-run average cost curve found? What is its importance to the firm?
70) “The long-run average cost curve is derived from adding all short-run average cost curves
together.” Do you agree or disagree? Explain.
71) What factors generate economies of scale?
72) “The short-run average total cost curve and the long-run average cost curve are both U-
shaped for the same reasons.” Do you agree or disagree? Why?
73) “A firm cannot experience both economies of scale and diminishing marginal product.” Do
you agree or disagree? Why?
74) Why might firms experience diseconomies of scale?
75) What is minimum efficient scale? Why is it important?
76) For an industry in which average costs continue to decline as output rises, what would you
expect the minimum efficient scale to be? Explain your answer.
77) “If an industry’s minimum efficient scale is between 2,000 and 4,000 units of output, then a
firm producing 2,000 units of output in that industry has a cost-saving advantage over another
firm producing 4,000 units of output in the same industry.” Do you agree or disagree? Explain.