ECON 211 Chapter 22 Long-Run Cost Curves Questions

The​ long-run average cost curve is also called the marginal cost curve

FALSE

On the​ graph, where do economies of scale​ exist?

In the range of outputs from A to B.

If damage caused by a powerful hurricane generates a reduction in the​ firm's plant size from its current size to B​, would there would be a leftward movement along the​ firm's long-run average total cost​ curve?

Yes

The​ long-run average cost curve is vertical

FALSE

If a​ firm's long-run average costs increase as its output​ increases, the firm is experiencing

diseconomies of scale.

Minimum efficient scale refers to the​ LOWEST rate of output per unit time at which​ long-run average costs for a particular firm are at a

MINIMUM

We observe economies of scale for a number of​ reasons, including​ specialization, improved productive​ equipment, and the DIMENSIONAL factor, because​ large-scale firms require proportionately less input per unit of output. The firm may experience DISECONOMIES of scale primarily because of limits to the efficient functioning of management.

TRUE

What is a​ firm's minimum efficient​ scale?

The lowest rate of output at which the firm achieves minimum​ long-run average cost.

What is the​ firm's minimum efficient​ scale?

C The minimum efficient scale is defined as the lowest rate of output at which​ long-run average costs are minimized. At the output rate when economies of scale end and constant economies of scale​ start, the minimum efficient scale​ (MES) for the firm is encountered. It occurs at point C.

. An​ electricity-generating company confronts the following​ long-run average total costs associated with alternative plant sizes. It is currently operating at plant size G. The​ firm's minimum efficient scale occurs at

E

When the​ long-run average cost curve is falling

the firm is experiencing economies of scale.

In​ economics, the planning horizon is defined as

the long​ run, during which all inputs are variable.

. In choosing the appropriate plant size for a​ single-plant firm during the long​ run, the firm will pick the size whose​ short-run average cost curve generates an average cost that is lowest for the expected rate of output

TRUE

The LONG run is often called the planning horizon. The LONG -run average cost curve is the planning curve. It is found by drawing a curve tangent to points on a series of SHORT ​-run average cost​ curves, each corresponding to a different plant size.

TRUE

The firm can experience economies of​ scale, diseconomies of​ scale, or constant returns to​ scale, all according to whether the​ long-run average cost curve slopes DOWNWARD, slopes UPWARD, or is HORIZONTAL, respectively. Economies of scale refer to what happens to average cost when all factors of production are increased

TRUE

The minimum efficient scale occurs at the LOWEST rate of output at which​ long-run average costs are MINIMIZED.

TRUE

Which of the following is true about the​ long-run average cost​ curve?

The​ long-run average cost curve is the envelope of the​ firm's short-run average cost curves. The​ long-run average cost curve is the locus​ (path) of points giving the least unit cost of producing any given rate of output.

. A manufacturing firm with a single plant is contemplating changing its plant size. It must choose from among seven alternative plant sizes. In the​ table, plant size A is the smallest it might​ build, and size G is the largest.​ Currently, the​ firm's plant size is B. At plant size​ B, this firm is currently experiencing

economies of scale. The long-run average cost curve slopes downward—an increase in scale and production leads to a fall in unit costs.

Which of the following statements describes a​ firm's long-run average cost​ curve?

A​ U-shaped curve that represents the minimum unit cost of producing any given rate of output.

Consider the figure to the right. Suppose that the current scale of output for a typical firm facing this LAC​ curve, which applies to all firms in this​ industry, is between points A and B​, at about 300 units per period. If a new firm entering the industry desires to produce at the minimum efficient​ scale, would it wish to produce 50 units per​ period, 300 units per​ period, or 600 units per​ period? Explain.

By​ definition, minimum efficient scale is the LOWEST rate of output per period that minimizes​ long-run average cost.​ However, EACH of the three output rates is consistent with minimized​ long-run average cost.​ Hence, a new firm entering the industry will wish to produce at any rate exceeding 50 and less than 600 units of output per period. ​(Enter your responses as whole​ numbers.) The firm experiences economies of scale to the left of point​ A, constant returns to scale between points A and​ B, and diseconomies of scale to the right of point B.

Economies of scale in production

indicate that as a firm​ expands, its​ long-run per-unit costs fall.

. The minimum possible​ short-run average costs are equal to​ long-run average costs when

the​ long-run curve is at a minimum point

The​ firm's minimum efficient scale occurs

when economies of scale end and constant returns to scale begin.