managerial econ ch 7

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

a. economies of scale.

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

rises and less than

Long-run average costs are lower for greater quantities of output.The cost of producing two products separately is greater than the cost of producing both of those goods jointly.

1) scale 2)scope

The variety of Riverside Ranger logo T-shirts includes 12 different designs. Setup between designs takes one hour (and $15,000), and, after setting up, you can produce 1,000 units of a particular design per hour (at a cost of $7,000). Note: Assume QQ denotes the quantity produced of a particular design. Which of the following best represents the average cost function for producing any single design?

AC=$15,000Q+$7 Based on this information, production in any one single designexhibits economies of scale.

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

To take advantage of potential economies of scope between sports beverages and Nike's current products

The below table describes the productivity of workers at a sub shop (say during a 10 minute period). # of workers Sandwiches produced 1 2 2 5 3 9 4 12 5 14 At what point does marginal productivity begin to decline?

With the fourth worker

The figure below shows a long-run average cost curve. What part of the long-run average cost curve exhibits economies of scale? a. Between 10 and 20 units per hour b. Between 20 and 40 units per hour c. Between 40 and 50 units per hour

a. Between 10 and 20 units per hour

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

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

law of diminishing marginal returns

as you try to expand output, your marginal productivity (the extra output associated with extra inputs) eventually declines.

Learning curves describe a relationship between

average variable cost and the cumulative number of units produced.

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

b. The law of diminishing returns

Economies of scope exist when

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

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

b. marginal productivity

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

c. diseconomies of scale.

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

d. produce and sell both products

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

diseconomies of scope.

economies of scope

exist when the cost of producing two products jointly is less than the cost of producing those two products separately.

Diseconomies of scale imply that

the firm should consider a reduction in production.