Econ 528 Final Exam Study Guide || WITH CORRECT
SOLUTIONS!!
If, when a firm doubles all its inputs, its average cost of production decreases, then
production displays
a.) diminishing returns
b.) economies of scale
c.) diseconomies of scale
d.) declining fixed costs correct answers b. ) economies of scale
The long-run average cost curve shows
A) the lowest average cost of producing every level of output in the long run.
B) where the most profitable level of output occurs.
C) the average cost of producing where diminishing returns are not present.
D) the plant size or scale that the firm should build. correct answers A) the lowest average
cost of producing every level of output in the long run
All of the following statements are true of the minimum efficient scale except one. Which
one?
A) All possible economies of scale have been exhausted.
B) The short-run average total cost curve's minimum point is equal to the long run average
cost curve's minimum point.
C) Any increase in the scale of operation will encounter diseconomies of scale.
D) An increase in the output level will increase profit. correct answers D) An increase in the
output level will increase profit
At the minimum efficient scale
A) all possible economies of scale have not been exhausted.
B) the firm has achieved the lowest possible average cost of production.
C) any increases in the scale of operation will encounter further economies of scale.
D) marginal cost is at its minimum. correct answers B) The firm has achieved the lowest
possible average cost of production.
The president of Toyota's Georgetown plant was quoted as saying, "Demand for high
volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the
expertise and knowledge we painstakingly built up over the years." Based on this quote, what
must be true of the plant's average cost of production curve?
A) It is upward-sloping.
B) It is downward-sloping.
C) It is a ray from the origin.
D) It is U-shaped correct answers A) It is upward-sloping
Economies of scope refers to the decrease in average total cost that can occur when a firm
A) produces more than one product
B) has monopoly power in world markets
C) controls the raw materials used as inputs
D) narrows the scope of its regional markets correct answers A) produces more than one
product
, Producing 200 units of good Y and 100 units of good X in the same factory costs the firm
$50,000. In contrast, producing 200 units of good Y in one factory and 100 units of good X in
another factory costs the firm $75,000. So if the firm produces the two goods together, it
achieves:
A) quadratic returns to scale
B) diseconomies of scope
C) economies of scope
D) diseconomies of scale and diseconomies of scope correct answers C) economies of scope
The marginal revenue product of labor for a firm
A) will increase if the price of the firm's output increases
B) is the firm's demand curve for labor
C) will decrease if the firm hires more labor
D) all of the above are correct correct answers D) all of the above are correct
9) Answer whether the following statements are true or false:
Over time, more experienced workers will demand higher wage and therefore, will lead to an
increased in the cost of production for the producers.
When you produce more, average cost of production increases. correct answers False
A reason why a perfectly competitive firm's demand for labor curve slopes downward is that
A) each additional unit of labor hired is less efficient than previously hired units.
B) in the short run, as more labor is hired, labor's marginal product falls because of the law of
diminishing returns.
C) the extra cost of hiring additional units of labor increases as a firm hires more units of
labor.
D) the firm's demand curve for the product that uses labor is downward sloping. correct
answers in the short run, as more labor is hired, labor's marginal product falls because of the
law of diminishing returns
The term "derived demand" refers to
A) the demand for financial products called derivatives.
B) the demand for a factor of production that is derived from the demand for the good the
factor produces.
C) a firm's estimated demand curve derived from sales data.
D) a demand curve that derives from the availability of resources correct answers B) the
demand for a factor of production that is derived from the demand for the good the factor
produces
The price of a factor of production that is in fixed supply is called
A) economic rent.
B) economic profit.
C) a compensating differential.
D) opportunity cost. correct answers A) economic rent
Which of the following is a reason why a firm would experience diseconomies of scale?
Select one:
a. To finance an increase in the size of its plant a firm must borrow more money or sell more
shares of stock.
SOLUTIONS!!
If, when a firm doubles all its inputs, its average cost of production decreases, then
production displays
a.) diminishing returns
b.) economies of scale
c.) diseconomies of scale
d.) declining fixed costs correct answers b. ) economies of scale
The long-run average cost curve shows
A) the lowest average cost of producing every level of output in the long run.
B) where the most profitable level of output occurs.
C) the average cost of producing where diminishing returns are not present.
D) the plant size or scale that the firm should build. correct answers A) the lowest average
cost of producing every level of output in the long run
All of the following statements are true of the minimum efficient scale except one. Which
one?
A) All possible economies of scale have been exhausted.
B) The short-run average total cost curve's minimum point is equal to the long run average
cost curve's minimum point.
C) Any increase in the scale of operation will encounter diseconomies of scale.
D) An increase in the output level will increase profit. correct answers D) An increase in the
output level will increase profit
At the minimum efficient scale
A) all possible economies of scale have not been exhausted.
B) the firm has achieved the lowest possible average cost of production.
C) any increases in the scale of operation will encounter further economies of scale.
D) marginal cost is at its minimum. correct answers B) The firm has achieved the lowest
possible average cost of production.
The president of Toyota's Georgetown plant was quoted as saying, "Demand for high
volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the
expertise and knowledge we painstakingly built up over the years." Based on this quote, what
must be true of the plant's average cost of production curve?
A) It is upward-sloping.
B) It is downward-sloping.
C) It is a ray from the origin.
D) It is U-shaped correct answers A) It is upward-sloping
Economies of scope refers to the decrease in average total cost that can occur when a firm
A) produces more than one product
B) has monopoly power in world markets
C) controls the raw materials used as inputs
D) narrows the scope of its regional markets correct answers A) produces more than one
product
, Producing 200 units of good Y and 100 units of good X in the same factory costs the firm
$50,000. In contrast, producing 200 units of good Y in one factory and 100 units of good X in
another factory costs the firm $75,000. So if the firm produces the two goods together, it
achieves:
A) quadratic returns to scale
B) diseconomies of scope
C) economies of scope
D) diseconomies of scale and diseconomies of scope correct answers C) economies of scope
The marginal revenue product of labor for a firm
A) will increase if the price of the firm's output increases
B) is the firm's demand curve for labor
C) will decrease if the firm hires more labor
D) all of the above are correct correct answers D) all of the above are correct
9) Answer whether the following statements are true or false:
Over time, more experienced workers will demand higher wage and therefore, will lead to an
increased in the cost of production for the producers.
When you produce more, average cost of production increases. correct answers False
A reason why a perfectly competitive firm's demand for labor curve slopes downward is that
A) each additional unit of labor hired is less efficient than previously hired units.
B) in the short run, as more labor is hired, labor's marginal product falls because of the law of
diminishing returns.
C) the extra cost of hiring additional units of labor increases as a firm hires more units of
labor.
D) the firm's demand curve for the product that uses labor is downward sloping. correct
answers in the short run, as more labor is hired, labor's marginal product falls because of the
law of diminishing returns
The term "derived demand" refers to
A) the demand for financial products called derivatives.
B) the demand for a factor of production that is derived from the demand for the good the
factor produces.
C) a firm's estimated demand curve derived from sales data.
D) a demand curve that derives from the availability of resources correct answers B) the
demand for a factor of production that is derived from the demand for the good the factor
produces
The price of a factor of production that is in fixed supply is called
A) economic rent.
B) economic profit.
C) a compensating differential.
D) opportunity cost. correct answers A) economic rent
Which of the following is a reason why a firm would experience diseconomies of scale?
Select one:
a. To finance an increase in the size of its plant a firm must borrow more money or sell more
shares of stock.
