n the early 2000s car makers began to design vehicles’ chassis, engine, and tran
ID: 1206558 • Letter: N
Question
n the early 2000s car makers began to design vehicles’ chassis, engine, and transmissions so that different models could be produced on the same assembly line. Within the first year of implementing the plan, Ford cut production costs by $240 per car.
a. What cost concept was Ford taking advantage of to produce its savings?
Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers.
Depreciation. ( )
Increasing marginal productivity. ( )
Economies of scope. ( )
Diminishing marginal productivity. ( )
Economies of scale. ( )
b. What effect did the plan likely have on Ford’s short-run average total cost curve?
a) The plan shifted the average total cost curve up.
d) The plan shifted the average total cost curve down.
c) The plan produced a more steeply-sloped total cost curve.
d) The plan produced a flatter total cost curve.
Explanation / Answer
ANSWER
Explanation :
When large scale production assembly is used for the assemblage of several models at the same time, there are the resulting economies of scale in operations. Since now all models share the same assembly line, it brings in economies in the form of reduced average costs.
The new technology also increases the marginal productivity of the car-manufacturing unit, because of efficiencies in the production process. This results in increasing marginal productivity of the inputs .
Explanation:
At every point on the total cost curve, each car produced had a lower cost by $240. This means that the height of the TC curve has been reduced. Therefore we understand that the TC curve has shifted downwards at every quantity produced.
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