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.
