41) Which of the following statements explains the difference between diminishing returns and diseconomies of scale?
A) Diminishing returns are the result of changes in explicit costs. Diseconomies of scale are the result of changes in explicit costs and implicit costs.
B) Diminishing returns refer to production while diseconomies of scale refer to costs.
C) Diminishing returns cause a firm’s marginal cost curve to rise; diseconomies of scale cause a firm’s marginal cost curve to fall.
D) Diminishing returns apply only to the short run; diseconomies of scale apply only in the long run.
42) Two stores – Lazy Guys and Ralph’s Recliners – are located in the same city. Both stores buy recliner chairs from the same manufacturer at the same price and both stores are about the same size, so that the fixed costs of production for both stores are the same. Ralph’s Recliners sells more recliners per month and Ralph’s has a lower average total cost of production. Which of the following can explain why the average total cost of production is lower for Ralph’s Recliners?
A) Because Ralph’s Recliners sells more output its average fixed costs are lower than Lazy Guy’s average fixed cost.
B) The rent Lazy Guys pays for its building is greater than the rent paid by Ralph’s Recliners.
C) Ralph’s explicit costs are less because Ralph owns the land on which his building is located. Lazy Guy must make lease payments for the land on which its store is located.
D) The price of recliners charged by Ralph’s is greater than the price charged by Lazy Guys.
43) Assume that you observe the long-run average cost curve of ACME Bookstores, a national chain. Starting from the point on the curve where output is zero and moving to the right which of the following lists the behavior of long-run average costs in the correct sequence (that is, which will be observed first, second, etc.)?
A) minimum efficient scale; economies of scale; constant returns to scale; diseconomies of scale
B) economies of scale; constant returns to scale; diseconomies of scale; minimum efficient scale
C) constant returns to scale; economies of scale; minimum efficient scale; diseconomies of scale
D) economies of scale; minimum efficient scale; constant returns to scale; diseconomies of scale
44) In the long run the relevant cost is total cost.
45) If the long-run average total cost curve is downward-sloping, then the firm is experiencing decreasing returns to scale.
46) If production displays constant returns to scale, then all economies of scale have been exhausted.
47) An important reason why diseconomies of scale arise is because firms may have to hire lower skilled workers as firms expand.
48) Minimum efficient scale is defined as the level of output at which the short-run average total cost stops decreasing.
49) If a firm is experiencing diseconomies of scale, its long-run average cost curve is increasing.
50) A U-shaped long run average cost curve implies that a firm experiences economies of scale at low levels of production and diseconomies of scale at high levels of production.
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