7.4 Costs in the Long Run

Which of the following least likely describes a firm that is experiencing economies of scale?

A firm produces hand-painted plates. The firm has no fixed costs, any worker for the firm takes the same amount of time to paint one item regardless of how many items they paint, and the firm cannot receive any discounts for ordering raw materials in bulk.

A firm is facing constant returns to scale if its total cost of production does not change with increases in output produced.

False, Constant returns to scales is when the firm's average cost of production does not change with increases in output produced.

A firm competing in a market where the LRAC curve has a clear minimum point has flexibility in its output.

False, When the LRAC curve has a clear minimum point, any firm that produces a different quantity from that minimum will have higher costs.

Constant returns to scale occur when the long-run average cost of producing each individual unit increases as total output increases.

False, constant returns to scale happens when expanding all inputs proportionately does not change the average cost of production.

Diseconomies of scale can be represented by the portion of the long-run average cost curve with a downward slope.

False, upward slope

The shape of the long-run average cost curve determines the number and size of firms competing in the industry.

True

If the long-run average cost curve has a ___________, competing firms that produce at minimum costs will have to produce the same exact quantity of output.

clear minimum point

A firm finds that producing 30,000 vases costs $180,000 and producing 40,000 vases costs $280,000. This pattern might be explained by ___________________.

diseconomies of scale

Economies of scale occur when a firm's long-run average total cost curve is ___________________.

downward sloping

The long-run average cost curve is typically _______________________.

downward-sloping at first but then upward-sloping

A firm was producing 20,000 units of output at the total cost of $40,000. It now produces 30,000 units and the corresponding total cost is $50,000. This firm is experiencing ____________________.

economies of scale

When car makers began to cut the costs of producing cars by designing the chassis, engine, and transmissions so that different models could be produced on the same assembly line, production costs fell $240 per car. Based on this information, this scenario could potentially illustrate _________________.

economies of scale

Which of the following explains a firm's output when the long-run average cost curve has a flat bottom?

firms are able to produce at a variety of output levels along the flat bottom of the curve.

A long-run average cost curve with a __________ allows firms to compete because they have a variety of output levels to produce at.

flat bottom

When a long-run average cost curve has a ______, ________ are able to compete in the market.

flat bottom; more firms of different sizes definite minimum; fewer firms of different sizes

When the long-run average cost (LRAC) _________ as output increases, a firm is experiencing ________ of scale.

increases; diseconomies

The long-run average cost (LRAC) curve is actually based on a group of ______________, each of which represents one specific level of fixed costs.

short-run average cost curves

When will a firm experience diseconomies of scale?

when LRAC increases as output increases

In which of the following scenarios will economies of scale occur?

when the LRATC decreases as quantity increases