1. In the long run, a firm that does not benefit from economies of scope has com
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Question
1. In the long run, a firm that does not benefit from economies of scope has complete control over all of the following variables except:
a) production technology.
b) plant size.
c) the supply of inputs.
d) the demand for inputs.
2. If the average total cost of supplying a good exceeds the price at which the good can be sold, then entrepreneurs have:
a) an incentive to supply the good.
b) no incentive to supply the good.
c) an incentive to supply only a small amount of the good.
d) an incentive to raise the average total cost of producing the good.
3. Which of the following provides the best explanation for diseconomies of scale?
a) The presence of fixed inputs.
b) Reduced monitoring costs.
c) Loss of team spirit.
d) Indivisible set-up costs.
4. Isoquants slope downward because:
a) average total costs decline.
b) as less of one input is used, more of another must be used if output is to remain constant.
c) as less of one input is used, more of another must be used if costs are to remain constant.
d) the marginal rate of substitution increases.
5. An entrepreneur would be least likely to develop a product if expected average total cost is:
a) $50 and expected price is $75.
b) $60 and expected price is $65.
c) $65 and expected price is $40.
d) $50 and expected price is $50.
6. The long run average cost curve is typically:
a) downward-sloping at first but then upward-sloping.
b) upward-sloping at first but then downward-sloping.
c) always downward-sloping.
d) always upward-sloping.
7. If labor costs $10 per unit and machines rent for $20 apiece, a movement along a given isocost line might imply a substitution of:
a) one unit of labor for one unit of machinery.
b) one unit of labor for two units of machinery.
c) one unit of machinery for two units of labor.
d) two units of machinery for three units of labor.
8. Suppose the average total cost of producing semiconductors in a factory of a particular size declines over time as more semiconductors are produced. This drop in average total cost might best be explained by:
a) economies of scale.
b) economies of scope.
c) learning by doing.
d) diminishing marginal productivity.
9. At the minimum efficient level of production:
a) a firm will be at the only technically efficient level of production.
b) the market has expanded sufficiently to take advantage of all economies of scale.
c) production has expanded to make the firm profitable at any price.
d) a firm will be at the only short run economically efficient level of production.
10. Economies of scale account for what part of a long run average total cost curve?
a) Downward-sloping.
b) Horizontal.
c) Upward-sloping.
d) Vertical.
Explanation / Answer
ans2-b) no incentive to supply the good.
ans3-c) Loss of team spirit.
ans4-b) as less of one input is used, more of another must be used if output is to remain constant.
ans5-a) $50 and expected price is $75.
ans6-a) downward-sloping at first but then upward-sloping.
ans7-b) one unit of labor for two units of machinery.
ans8-a) economies of scale.
ans9-b) the market has expanded sufficiently to take advantage of all economies of scal
ans10-a) Downward-sloping.
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