ECON 202 EXAM ANSWERS
Which plant size would produce at the least cost for the 3,000-4,000 range of output?
A. 1
B. 2
3
4
Plant sizes get larger as you move from ATC-1 to ATC-4.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
Output
ATC-1
ATC-2
ATC-3
ATC-4
1,500
$10
15
$20
$30
2,000
8
12
17
25
2,500
9
10
15
20
3,000
12
8
13
18
3,500
15
6
11
16
4,000
18
10
9
14
4,500
20
12
7
12
5,000
24
15
11
10
5,500
29
19
13
8
6,000
35
25
15
9
In the long run, the firm should use plant size ATC-3 for what level of output?
A. less than 3,000 B. 3,000 to 3,500 C. 4,000 to 4,500 D. 5,000 to 5,500
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
Plant sizes get larger as you move from ATC-1 to ATC-4.
Output
ATC-1
ATC-2
ATC-3
ATC-4
1,500
$10
15
$20
$30
2,000
8
12
17
25
2,500
9
10
15
20
3,000
12
8
13
18
3,500
15
6
11
16
4,000
18
10
9
14
4,500
20
12
7
12
5,000
24
15
11
10
5,500
29
19
13
8
6,000
35
25
15
9
Over what range of outputare economies of scale experienced by this firm?
A. 1,500 to 3,000
B. 1,500 to 3,500
C. 2,000 to 3,500
D. 2,000 to 4,000
Plant sizes get larger as you move from ATC-1 to ATC-4.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
Output
ATC-1
ATC-2
ATC-3
ATC-4
1,500
$10
15
$20
$30
2,000
8
12
17
25
2,500
9
10
15
20
3,000
12
13
18
3,500
15
6
11
16
4,000
18
10
9
14
4,500
20
12
7
12
5,000
24
15
11
10
5,500
29
19
13
8
6,000
35
25
15
9
The firm’s minimum efficient scale is at what output level?
A. 2,500
B. 3,000
C. 3,500
D. 4,000
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
A given level of consumer demand will support a large number of producers in an industryif
minimum efficient scale (MES) is very large.
the long-run ATC curve decreases as outputlevels increase.
C. diseconomies of scale are alreadyencountered even at low levels of output.
D. exclusive patents and high government license fees are prevalent in the industry.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
339.
Refer to the providedgraphs. They show the long-run average totalcost (LRATC) for a product. For which graph would a firm not be experiencing diseconomies of scale?
A. graph A
graph B
graph C
graph D
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
340.
Refer to the provided graphs. They show the long-runaverage total cost (LRATC) for a product. For which graph would a firm experiencefirst economies and then diseconomies of scale over its range of output?
A. graph A
B. graph B
graph C
graph D
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
341.
Refer to the providedgraphs. They show the long-run average totalcost (LRATC) for a product. Which graph would most probably be applicable to a natural monopoly?
A. graph A
graph B
graph C
graph D
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
342.
The following schedule gives the cost data for a firm.
Total Product
Long-Run Total Cost
10
$200
20
300
30
450
40
600
50
1,000
Diseconomies of scale start between
A. 0 and 10 units of output.
B. 40 and 50 units of output.
20 and 30 units of output.
30 and 40 units of output.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
Diseconomies of scale occur mainly because
of the law of diminishing returns.
firms in an industry must be relatively large in order to use the most efficient production techniques.
C. of the inherentdifficulties involved in managing and coordinating a large business enterprise.
D. the short-run average total cost curve rises when marginalproduct is greater than average total cost.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
Which of the followingstatements is not correct?
The real cost of producingX is the quantityof products, R, S, or T etc., which could have been producedwith the resourcesdevoted to X.
Diseconomies of scale arise primarilyfrom the difficulties in managing and coordinating a large-scale business enterprise.
C. The law of diminishing returns explains the fact that the long-run average total cost curve is U-shaped.
D. Average fixed costs diminish so long as output increases.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
A natural monopoly is characterized by
A. collusion with other competitors to divide up the market.
B. a decreasing average-cost curve extendingbeyond the market'ssize.
a firm protectedfrom competition by a governmentregulation.
a firm having control over the entire supply of a basic input in the production process.
The followingtable shows the short-runtotal cost data for a firm.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
Output
Total Cost
0
$ 80
1
160
2
240
3
320
4
400
5
480
6
560
All of the followingare correct, except that the firm has
A. economies of scale.
fixed costs of $80.
constant marginal cost.
an averagefixed cost of $20 at 4 units of output.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
347.
Refer to the providedgraph. There are economiesof scale
A. from Q1 to Q2.
from Q2 to Q3.
from Q3 to Q4.
beyond Q4.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
348.
Refer to the providedgraph. There are diseconomies of scale
from Q1 to Q2.
from Q2 to Q3.
from Q3 to Q4.
D. beyond Q4.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
349.
Refer to the provided graph. Minimum efficient scale occurs at
A. Q1.
B. Q2.
Q3.
Q4.
AACSB: Knowledge Application
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
If there are 10 plants producingthe total domestic consumption of a product and each plant is operating at minimumefficient scale, then each plant accounts for whatpercentage of domestic consumption?
A. 5 percent
B. 10 percent
20 percent
25 percent
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard
Learning Objective: 09-04 Use economies of scale tolinka firms size and its average costsin the long run.
Test Bank: II Topic: Long-Run Production Costs
The law of diminishing returns implies that
the more hours you spend studying, the less you will know.
your understanding will be increased by decreasing your marginal study time.
C. eventually, the more hours you spend studying per day, the less you willlearn with each added hour.
D. the more hours you spend studying per day, the more you will learn with each added hour.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-05 Give businessexamples of short-runcosts, economies of scale, and minimum efficientscale MES.
Test Bank: II Topic: Applications and Illustrations
Chris is preparing for a comprehensive course exam by reading a textbookwith chapters of equal length and difficulty. The number of chapters she can comprehend and master when studying is: (1) hour one, 1.5 chapters;(2) hour two, 2.0 chapters;(3) hour three,1.5 chapters; (4) hour four, 1 chapter; (5) hour five, 0 chapters. Diminishing marginal returns to studying sets in for
Chris afterhour
A. one.
B. two.
four.
five.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-05 Give businessexamples of short-runcosts, economies of scale, and minimum efficientscale MES.
Test Bank: II Topic: Applications and Illustrations
Many people have turned to the Internet to get the news. This has caused the circulation numbers of newspapers to fall drastically, which in turn caused their
A. average fixed costs to increase.
average total costs to decrease.
average fixed costs to decrease.
marginal costs to increase.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-05 Give businessexamples of short-runcosts, economies of scale, and minimum efficientscale MES.
Test Bank: II Topic: Applications and Illustrations
Which of the following is a typical example of a fixed cost of production in a manufacturing firm?
A. depreciation of capital
wages paid to hourly workers
electricity charges
sales taxes due
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-05 Give businessexamples of short-runcosts, economies of scale, and minimum efficientscale MES.
Test Bank: II Topic: Applications and Illustrations
A fast-food company spends millions of dollars to developand promote a new hamburgeron their menu only to find that consumers won't buy it because they don't like the taste. From an economic perspective, the company should
keep the hamburger on the menu because they've spent so much money and time developing and promoting the product.
spend more money to develop a more efficientway to cook the hamburgerso it cooks in a shorter time.
C. pull the hamburgeroff the menu and treat the development and promotion expenditures as a sunk cost.
D. keep trying to sell the hamburgerso that people who developedand promote it have a job with the company.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-05 Give businessexamples of short-runcosts, economies of scale, and minimum efficientscale MES.
Test Bank: II Topic: Applications and Illustrations
When the price of gasoline increases significantly, the delivery companies like UPS, FedEx,and the USPS all find
A. their TVC curves shifting up.
their TFC curves shiftingup.
themselves movingup along their TC curves.
themselves moving up along their TVC curves.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-05 Give businessexamples of short-runcosts, economies of scale, and minimum efficientscale MES.
Test Bank: II Topic: Applications and Illustrations
When the Defense Department ordered 132 new airplanes, the cost per plane was estimated to be $580 million. A cut in the order to 75 planes increased the per plane cost to $800 million. This change in per unit cost can be explainedby
a move to minimum efficient scale.
the law of diminishing returns.
C. the loss of economies of scale.
D. an increasein total fixed cost.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-05Give business examples of short-run costs, economiesof scale, and minimum efficient scale MES.
Test Bank: II Topic: Applications and Illustrations
Which of the following gadgets is hoped to delivera Third Industrial Revolution?
tablet computers or iPads
GPS and iPhones
C. 3-D printers
D. drones or unmannedaerial vehicles
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-05 Give businessexamples of short-runcosts, economies of scale, and minimum efficientscale MES.
Test Bank: II Topic: Applications and Illustrations
The mass affordability of the iPhone is the result of the following, except
A. mass production and spreading of fixed costs.
B. the law of diminishing returnsinmanufacturing.
economies of scale and large volumes.
mass sales and distribution cost savings.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-05 Give businessexamples of short-runcosts, economies of scale, and minimum efficientscale MES.
Test Bank: II Topic: Applications and Illustrations
3-D printerscan reduce the cost of producing items becausethey
eliminate massive factory costs.
reduce transportation costs significantly.
make use of low-costmaterials and low-energy requirements.
D. exploit huge economiesof scale in production.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-05Give business examples of short-run costs, economiesof scale, and minimum efficient scale MES.
Test Bank: II Topic: Applications and Illustrations
True / False Questions
Normal profit is an implicit cost.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
Economic profits are usuallylarger than accounting profits.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
If a firm produces zero outputin the short run, then its profitswill also be zero.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-01 Explain why economic costs include both explicitrevealed and expressed costs and implicit present but not obvious costs.
Test Bank: II Topic: Economic Costs
In the long run, a firm can increaseits output quantity, but it will be limited by the size of its existing production plant.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Economic Costs
When diminishing marginal returns starts occurring, the additionof successive unitsof a variable resource to a fixed resourcewill cause the firm'sproduction to diminish.
FALSE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
Over the range of positive, but diminishing, marginal returnsfor an input, the total product curve increases at a decreasing rate.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium
Learning Objective: 09-02 Relate the law of diminishingreturns to a firms short-run production costs.
Test Bank: II Topic: Short-Run Production Relationships
If the average product of labor equals 4 at all levels of output, the marginalproduct of labor is also equal to 4 at all levels of output.
TRUE
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02Medium