Final Review 1.6

What is the term used to describe a reduction in average cost of production arising from a firm operating on a larger scale?

• Diseconomies of scope

• Economies of scale

• Economies of scope

• Fixed-cost spreading

If fixed costs are $200,000 and the variable costs associated with producing 50,000 shoes is $400,000, what is the average cost (per shoe)?

• $4

• $8

• $12

• $14

If fixed costs are $200,000 and the variable costs associated with producing 80,000 shoes is $640,000, what is the average cost (per shoe)?

• $2.50

• $8.50

• $10.50

• $12.00

If fixed costs are $200,000 and the average variable cost per shoe is $8, what is the total profit that would be earned if the average selling price per shoe was $30, and 80,000 shoes are sold?

• $1,280,000

• $1,560,000

• $1,750,000

• $2,200,000

What are internal economies of scale?

• Cost savings due to factors within the firm’s control

• Cost savings occurring due to improved infrastructure

• Cost savings occurring due to industry growth

• Cost savings occurring due to technological progress

Which of the following is not an example of an internal economy of scale?

• Managerial economies of scale

• Purchasing economies of scale

• Availability of specialist labour

• Marketing economies of scale

When a firm can utilize highly efficient machinery and automation techniques to mass produce its output and reduce average cost, this is a _____________ economy of scale.

• Financial

• Technical

• Purchasing

• Specialisation

When a large firm can borrow money at a lower cost compared to a small firm, this is a _____________ economy of scale.

• Technical

• Risk-bearing

• Purchasing

• Financial

Which option is not an example of external economies of scale?

• Technical

• Risk-bearing

• Purchasing

• Financial

If an area possesses significant production support services and an abundance of highly skilled labour, allowing firms to reduce their average costs, what is this referred to as?

• Regional specialization

• Managerial economies

• Internal economy of scale

• Marketing economies