Long Run Costs

If a firm’s production process exhibits economies of scale, which of the following will occur when the firm’s output increases?

• Its short-run average total costs will rise. 

• Its short-run total costs will fall. 

• Its long-run average total costs will fall. 

• Its long-run total costs will fall. 

A period of time when all factors of production are variable

• Average variable costs

• Marginal revenue (MR)

• Marginal cost

• Long run

In the context of long run costs, what does the term 'economies of scale' refer to?

• A) A situation where long-run average costs increase as output increases.

• B) A situation where long-run average costs decrease as output increases.

• C) A situation where short-run average costs decrease as output increases.

• D) A situation where short-run average costs increase as output increases.

Which of the following is true about long run costs in a perfectly competitive market?

• A) Firms can enter or exit the market freely.

• B) Firms face high barriers to entry.

• C) Firms have fixed costs that do not change.

• D) Firms cannot adjust their scale of production.

What is the primary difference between short run and long run costs?

• A) In the short run, all inputs are variable.

• B) In the long run, all inputs are fixed.

• C) In the short run, at least one input is fixed.

• D) In the long run, at least one input is fixed.

How do long run costs relate to the concept of 'returns to scale'?

• A) Returns to scale only affect short run costs.

• B) Returns to scale have no impact on long run costs.

• C) Returns to scale determine how costs change as output changes in the long run.

• D) Returns to scale are irrelevant in cost analysis.

Which of the following best describes 'constant returns to scale'?

• A) Long-run average costs increase as output increases.

• B) Long-run average costs decrease as output increases.

• C) Long-run average costs remain unchanged as output increases.

• D) Long-run average costs fluctuate unpredictably.

In the long run, what happens to a firm's costs if it experiences diseconomies of scale?

• A) Long-run average costs decrease as output increases.

• B) Long-run average costs increase as output increases.

• C) Long-run average costs remain constant as output increases.

• D) Long-run average costs are unaffected by output changes.

What is the significance of the 'minimum efficient scale' in long run cost analysis?

• A) It is the level of output where long-run average costs are minimized.

• B) It is the level of output where short-run average costs are minimized.

• C) It is the level of output where total costs are maximized.

• D) It is the level of output where marginal costs are minimized.

How do technological advancements impact long run costs?

• A) They typically increase long-run costs.

• B) They have no effect on long-run costs.

• C) They can lead to lower long-run costs by improving efficiency.

• D) They only affect short-run costs.