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386 Miller Economics Today, 16th Edition
6) In the above figure, the long run cost curve between points C and D illustrates
A) diseconomies of scale. B) diminishing marginal product.
C) constant returns to scale. D) economies of scale.
7) In the above figure, the long run cost curve between points E and F illustrates
A) diseconomies of scale. B) diminishing marginal product.
C) constant returns to scale. D) economies of scale.
8) Economies of scale occur when there are
A) decreases in long run average costs resulting from increases in output.
B) no changes in long run average costs when output increases.
C) increases in long run average costs when output increases.
D) decreases in output resulting from decreases in input.
9) In the above figure, for any output level less than Q2
,
this firm experiences
A) economies of scale. B) diseconomies of scale.
C) constant economies of scale. D) decreasing long run average costs.
10) In the above figure, the firm experiences constant returns to scale between output levels of
A) zero and Q1. B) Q2and Q3.
C) Q3and Q4. D) any level greater than Q4.
11) Economies of scale exist where the long run average cost curve is
A) horizontal. B) downward sloping.
C) upward sloping. D) tangent to the marginal cost curve.
12) The typical shape of the long run average cost curve is like
A) the letter C. B) the letter U.
C) an inverse of the letter V. D) a circle.
13) Diseconomies of scale occur
A) only in the short run. B) only in the long run.
C)
b
ecause of fixed costs. D) none of the above.
14) A horizontal long run average cost curve indicates
A) constant returns to scale. B) diseconomies of scale.
C) constant marginal physical product. D) economies of scale.
7
15) When increasing its output results in falling costs, a firm that can adjust all inputs is
experiencing
A) diseconomies of scale. B) economies of scale.
C) loss. D) capital gains.
16) Which of the following is NOT a reason a firm might experience economies of scale?
A) Specialization B) Dimensional factors
C) Increasing long run average costs D) More productive equipment
17) Which of the following physical relationships might generate economies of scale?
A) Proportionally larger pipes can transport more than a proportional increase in oil.
B) Larger equipment tends to weigh more and use more fuel on a per unit of output basis.
C) Each lift truck requires one lift truck driver.
D) A doubling of all inputs leads to a doubling of output.
18) If a firm is experiencing diseconomies of scale, then
A) proportional increases in all inputs result in proportional increases in output.
B) the long run average cost curve is rising as output expands.
C) the long run average cost curve is decreasing as output expands.
D) the firm should expand the size of its operation.
19) The law of diminishing marginal product is responsible for
A) economies of scale. B) constant returns to scale.
C) diseconomies of scale. D) none of the long run relationships.
20) The law of diminishing marginal product
A) holds in the short run and the long run because as you increase the amount of variable
inputs eventually the increases in output will decrease.
B) does not hold in the short run because of fixed costs.
C) does not hold in the long run because there are no fixed inputs in the long run.
D) holds in the short and long run because of economies to scale.
21) 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.
22) 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.
23) 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.
24) 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.
25) 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.
26) 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.
27) 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.
28) 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.
29) 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.
30) 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.
31) 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 levels of management
32) 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) constant returns to scale.
33) Refer to the above figure. Economies of scale exist
A) over the entire range of output. B) from output Q2to Q5.
C) up to output Q2. D) after output Q5.
34) Refer to the above figure. Diseconomies of scale exist
A) over the entire range of output. B) from output Q2to Q5.
C) up to output Q2. D) after output Q5.
35) Refer to the above figure. Constant returns to scale exist
A) up to output Q2.
B) from Q2to Q5.
C) after Q5.
D) over the entire long run average cost curve.
36) 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.
37) 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.
38) 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.
39) All of the following are reasons for economies of scale EXCEPT
A) diminishing marginal product. B) specialization.
C) dimensional factors. D) improved production equipment.
40) 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.
41) What factors generate economies of scale?
42) 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?
43) A firm cannot experience both economies of scale and diminishing marginal product. Do you
agree or disagree? Why?
44) Why might firms experience diseconomies of scale?
Chapter 22 The Firm: Cost and Output Determination 395
22.8 Minimum Efficient Scale
1) 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.
2) 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.
3) 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.
4) 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.
5) 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.
6) Refer to the above figure. Minimum efficient scale is at output rate
A) Q1. B) Q2. C) Q3. D) Q5.
7) 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.
8) 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.
9) 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.
10) 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.
11) 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.
12) What is minimum efficient scale? Why is it important?
13) 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.
14) 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.
