MBA650 - Ch 7 Economies of Scale and Scope

a. total output increases in the same proportion as do the inputs.

Constant returns to scale means that as all inputs are increased,

True

Diminishing marginal productivity implies increasing marginal cost.

b. the firm should consider a reduction in production.

Diseconomies of scale imply that

b. changing the mix of products produced reduces average cost.

Economies of scope exist when

a. economies of scale.

If a firm doubles its inputs and output more than doubles, its production process exhibits

d. produce and sell both products

If economies of scope exist across two products, we would expect that firms will likely ________.

True

If long-run average costs rise with output, you have decreasing returns to scale or diseconomies of scale.

a. diseconomies of scope.

Increasing complexity of management and challenges of coordination as firms produce a wider variety of products can be a source of

c. diseconomies of scale.

Increasing complexity of management and challenges of coordination as firms produce more of the same product can be a source of

True

Increasing marginal costs eventually lead to increasing average costs.

c. average variable cost and the cumulative number of units produced.

Learning curves describe a relationship between

Economies of Scale

Long-run average costs are higher for smaller quantities of output.

The cost of producing sports beverages under a new brand is greater than producing the sports beverages under the Nike brand, given the current products being produced by Nike.

Suppose Nike's managers were considering expanding into producing sports beverages. Why might the company decide to do this under the Nike brand name?

Economies of Scope

The cost of producing two products separately is greater than the cost of producing both of those goods jointly.

b. marginal productivity

The law of diminishing marginal returns refers to the general tendency for __________to eventually diminish.

AC=($22,000/Q)+$6 Based on this information, production in any one single design exhibits economies of scale.

The variety of Riverside Ranger logo T-shirts includes 12 different designs. Setup between designs takes one hour (and $22,000), and, after setting up, you can produce 1,000 units of a particular design per hour (at a cost of $6,000).

remains constant ; equivalent to

Under constant returns to scale, average cost remains constant as the quantity produced increases. Over this range of output, the marginal cost curve is equivalent to the average cost curve.

b. The law of diminishing returns

Which of the following helps explain why marginal cost eventually increases as output increases?