Question : 21) What the difference between “diminishing marginal returns” and “diseconomies : 1267126

21) What is the difference between “diminishing marginal returns” and “diseconomies of scale”?

A) Both concepts explain why marginal cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable.

B) Both concepts explain why average total cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable.

C) Diminishing marginal returns, which applies only in the short run when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale, which applies in the long run when all factors are variable, explains why average cost increases.

D) Diminishing marginal returns ,which applies only in the long run when all factors are variable, explains why average variable cost increases, while diseconomies of scale, which applies in the short run when at least one factor is fixed, explains why average total cost increases.

Figure 8-5

22) Refer to Figure 8-5. Suppose for the past 8 years the firm has been producing Qd units per period using plant size ATC4.  Now, following a permanent change in demand, it plans to cut production to Qc units. What will happen to its average cost of production?

A) In the short run, its average cost falls from $47 to $41, and in the long run, average cost falls even further to $37.

B) In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $41.

C) In the short run, its average cost falls from $47 to $37, and in the long run, average cost rises to $41.

D) In the short run, its average cost rises from $47 to $55, and in the long run, average cost falls to $37.

23) Refer to Figure 8-5. Identify the minimum efficient scale of production.

A) Qa

B) Qb

C) Qc

D) Qd

24) Assume that 1366 Technologies initially does not sell enough solar wafers to realize economies of scale. To reach economies of scale, 1366 Technologies must

A) produce and sell more wafers at a lower average total cost.

B) produce and sell fewer wafers at a lower average total cost.

C) produce and sell more wafers at a higher average total cost.

D) produce and sell fewer wafers at a higher average total cost.

25) A positive technological change which decreases the price of inputs 1366 Technologies uses to produce solar wafers will cause

A) 1366 Technologies’ average total cost curve and marginal cost curve to shift downward.

B) 1366 Technologies’ average total cost curve but not its marginal cost curve to shift downward.

C) 1366 Technologies’ marginal cost curve but not its average total cost curve to shift downward.  

D) a movement downward along 1366 Technologies’ current average total cost curve.

26) In the long run the relevant cost is total cost.

27) If the long-run average total cost curve is downward-sloping, then the firm is experiencing decreasing returns to scale.

28) If production displays constant returns to scale, then all economies of scale have been exhausted.

29) An important reason why diseconomies of scale arise is because firms may have to hire lower skilled workers as firms expand.

30) What are economies of scale? What are diseconomies of scale?