Module 56

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 1 mixer and bakes 100 cakes per day, what is her average fixed cost?

$10

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 3 mixers and bakes 400 cakes per day, what is her average total cost?

$10.25

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 1 mixer and bakes 400 cakes per day, what is her average total cost?

$12.50

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 3 mixers and bakes 200 cakes per day, what is her average fixed cost?

$12.50

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 2 mixers and bakes 200 cakes per day, what is her average total cost?

$14.50

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 1 mixer and bakes 200 cakes per day, what is her average total cost?

$15

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 2 mixers and bakes 100 cakes per day, what is her average fixed cost?

$15

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 1 mixer and bakes 400 cakes per day, what is her average fixed cost?

$2.50

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 1 mixer and bakes 100 cakes per day, what is her average total cost?

$20

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 3 mixers and bakes 100 cakes per day, what is her average total cost?

$29

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 2 mixers and bakes 400 cakes per day, what is her average fixed cost?

$3.75

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 1 mixer and bakes 200 cakes per day, what is her average fixed cost?

$5

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 3 mixers and bakes 400 cakes per day, what is her average fixed cost?

$6.25

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 2 mixers and bakes 200 cakes per day, what is her average fixed cost?

$7.50

Buffalo Aircraft doubles the amount of all of the inputs it uses - the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. If the price of inputs is unchanged, this means that Buffalo Aircraft is operating with:

. economies of scale.

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. How many mixers should Pat buy to get the lowest average total cost if she plans to make 400 cakes?

3

Use Figure: Long-Run and Short-Run Average Cost Curves. If a firm faced the long-run average total cost curve shown in the figure and it expected to produce 100,000 units of the good in the long run, the firm should build the plant associated with:

ATC2.

The long-run average total cost curve is tangent to an infinite number of short-run _____ cost curves.

average total

The long-run average total cost of producing 100 units of output is $4, while the long-run average cost of producing 110 units of output is $4. These numbers suggest that between 100 and 110 units of output, the firm producing this output has:

constant returns to scale.

When a firm adds capital, in the short run variable costs for any level of output will:

decrease

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 1 mixer, her average fixed cost _____ in the range of output between 100 and 400 cakes.

decreases

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 1 mixer, her average total cost _____ in the range of output between 100 and 400 cakes.

decreases

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 2 mixers, her average fixed cost _____ in the range of output between 100 and 400 cakes.

decreases

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 2 mixers, her average total cost _____ in the range of output between 100 and 400 cakes.

decreases

(Ref. 22-1 Table: Cakes) Use Table 22-1: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 3 mixers, her average total cost _____ in the range of output between 100 and 400 cakes.

decreases

(Ref. 22-3 Figure: Long-Run Average Cost) Use Figure 22-3: Long-Run Average Cost. This firm has _____ in the output region from B to C.

diseconomies of scale

A firm that has diminishing returns in the management's ability to use and disseminate information as it increases production in the long run BEST demonstrates:

diseconomies of scale.

A firm's long-run average total costs increase as it produces more output. This firm has:

diseconomies of scale.

The long-run average cost curve will be upward-sloping when the firm has:

diseconomies of scale.

When an increase in the firm's output reduces its long-run average total cost, it achieves _____ scale.

economies of

A firm that is able to use its inputs more efficiently as it increases production in the long run best demonstrates:

economies of scale.

A production function that is characterized by economies of scale will not be subject to diminishing returns.

false

If a firm has to increase output suddenly to meet an increase in demand, its average total cost will decrease in the short run until it has time to add physical capital.

false

In some complex production processes, such as nuclear power plants, some inputs have to be treated as being fixed even in the long run.

false

In the long run, when a firm adds physical capital, workers become more productive, so variable costs increase.

false

The long run is the period during which fixed costs do not change.

false

The long-run average cost curve is tangent to a series of short-run average fixed cost curves.

false

The long-run average total cost curve shows the relationship between output and the average total cost when variable cost has been chosen to minimize average total cost for each level of output.

false

When a firm adds physical capital, its fixed cost will decrease in the short run.

false

When the long-run average total cost curve is downward-sloping as output increases, the firm has diseconomies of scale.

false

A firm that has lower costs per unit as it increases production in the long run has:

increasing returns to scale.

A manufacturing company that benefits from lower costs per unit as it grows is an example of a firm exhibiting:

increasing returns to scale.

If your firm is operating in the negatively sloped portion of a long-run average total cost curve, then your production exhibits:

increasing returns to scale.

The curve that illustrates the relationship between output and average total cost when the fixed cost has been chosen to minimize average total cost for each level of output is the _____ curve.

long-run average total cost

Economies and diseconomies of scale are associated with the:

long-run average total cost curve and the long run.

Decreasing and increasing returns to scale account for the shape of the:

long-run average total cost curve.

When a firm adds capital, in the short run workers will be:

more productive, since they have more equipment.

The slope of a long-run average total cost curve exhibiting increasing returns to scale is:

negative

When all of a firm's inputs are doubled, input prices do not change, and this results in the firm's level of production more than doubling, a firm is operating

on the downward-sloping portion of its long-run average total cost curve.

When all of a firm's inputs are doubled, input prices do not change, and this results in the firm's level of production more than doubling, a firm is operating:

on the downward-sloping portion of its long-run average total cost curve.

(Ref 22-2 Table: Long-Run Total Cost) Use Table 22-2: Long-Run Total Cost. This soybean grower receives constant returns to scale over the _____ and _____ bushels.

third; fourth

Economies of scale are often the result of increased specialization, which can occur when output levels increase.

true

Firms choose their level of fixed cost in the long run based on the amount of output that they expect to produce.

true

If a firm builds a larger plant and increases output and if its long-run average total cost does not change, the firm has constant returns to scale.

true

If output increases, a firm will move along its short-run average total cost curve in the short run until it has time to adjust its fixed cost.

true

When a firm adds physical capital, its variable cost will decrease in the long run.

true

When the long-run average total cost curve is upward sloping as output increases, the firm has diseconomies of scale.

true

In the long run, all costs are:

variable