Worksheets1.5 Theory of the Firm - LR Production/Cost
Total questions: 16
Worksheet time: 9mins
Which levels of output are produced at the minimum possible cost per unit?
q1
q2
q3
All of the above.
Use the following two statements to answer this question:
I. Increasing returns to scale cause economies of scale.
II. Economies of scale cause increasing returns to scale.
Both I and II are true.
I is true, and II is false.
I is false, and II is true.
Both I and II are false.
The LRAC (long run average cost) and LRMC (long run marginal cost) curves in the diagram below are consistent with a production function that exhibits:
decreasing returns to scale.
constant returns to scale.
increasing returns to scale.
increasing returns to scale for small levels of output, then constant returns to scale, and eventually decreasing returns to scale as output increases.
decreasing returns to scale for small levels of output, then constant returns to scale, and eventually increasing returns to scale as output increases.
Which factors are reasons for the occurrence of economies of scale?
Specialisation of labour and management
Indivisibilities of capital equipment and efficient processes
Co-ordination and monitoring difficulties
Poor worker motivation
Which factors are reasons for the occurrence of diseconomies of scale?
Communication difficulties
Efficiency of capital equipment
Co-ordination and monitoring difficulties
Poor worker motivation
The U shape of the long run average total cost (LRATC) curve has nothing to do with diminishing returns
True - diminishing returns are a feature of only short-run production and costs
False - diminishing returns causes economies of scale
Based on the diagram the downward sloping portion of the curve represents ____
Economy of scale - the average cost rises proportionately less to output.
Constant economy of scale - average cost rises proportionately to output
Diseconomy of scale - average cost rises proportionately faster than output
Based on the diagram the upward sloping portion of the curve represents ____
Economy of scale - the average cost rises proportionately less to output.
Constant economy of scale - average cost rises proportionately to output
Diseconomy of scale - average cost rises proportionately faster than output
Based on the diagram at POINT C there is ______
Economy of scale - the average cost rises proportionately less to output.
Constant economy of scale - average cost rises proportionately to output
Diseconomy of scale - average cost rises proportionately faster than output
The diagram is for a farmer who produces with two inputs, land and labour. In this diagram what does the SRATC represent?
The possible options of farm sizes
The lowest possible average cost that can be attained by a firm for any level of output
The point at which a firm achieves minimum efficient scale
Which farm sizes should the farmer select?
SRAC4 - as at this point the firm has its lowest long run total average costs
SRAC9 - as the firm is producing the most amount of output
SRAC3 - as this is when the firm is still experiencing increasing returns to scale
