Clayton State University - ECON 6100

1)The law of diminishing marginal productivity states that

1. 1. As you expand output, your marginal productivity eventually increases
   2. As you expand output, your marginal productivity eventually declines
   3. As you expand output, the total product eventually increases
   4. None of the above

2. Average costs curves initially fall
   1. Due to declining average fixed costs
   2. Due to rising average fixed costs
   3. Due to rising fixed costs
   4. Due to rising marginal costs

3. Average costs curves rise with production
   1. Due to declining average fixed costs
   2. Due to rising average fixed costs
   3. Due to marginal costs being less than average costs
   4. Due to rising marginal costs

4. Which one of the statements is true?
   1. Diminishing returns is a long-run concept while decreasing returns to scale is a short-run concept.
   2. Diminishing returns is a short-run concept while decreasing returns to scale is a long-run concept.
   3. Diminishing returns is a both short and long-run concept while decreasing returns to scale is a short-run concept.
   4. Diminishing returns is a long-run concept while decreasing returns to scale is a short and long-run concept.

5. Which of the following statements describes the presence of diminishing returns? All else equal,
   1. Marginal product is constant as output increases
   2. Marginal product is falling as output increases
   3. Marginal product is rising as output increases
   4. Marginal product is zero

6. The term “bottleneck” refers to
   1. when increasing amounts of variable inputs must share a fixed input.
   2. “fixity” of some factor of production
   3. None of the above
   4. Both a and b

7. All the factors below are causes of diminishing marginal returns, except
   1. Difficulty of monitoring and motivating larger workforces
   2. Increasing complexity of larger systems
   3. Specialization and division of Labor
   4. The “fixity’ of some factor

8. When a firm is experiencing increasing marginal costs, it implies
   1. A constant marginal productivity
   2. decreasing average costs
   3. decreasing marginal productivity
   4. increasing marginal productivity

9. If average cost is decreasing, then marginal cost
   1. Must be increasing
   2. Must be greater than average cost
   3. Must be less than average cost
   4. None of the above

10. Marginal productivity is
    1. The total output associated with total inputs
    2. The total output associated with extra inputs
    3. The extra output associated with total inputs
    4. The extra output associated with extra inputs

11. Once marginal costs rise above the average cost,
    1. Average cost increases
    2. Average cost decreases
    3. Average costs will stay the same
    4. None of the above

12. When a firm’s marginal productivity declines as output increases, then the firm is experiencing
    1. Diminishing returns to scale
    2. Constant returns to scale
    3. Increasing returns to scale
    4. Increasing marginal product

13. Diminishing marginal productivity implies
    1. decreasing marginal costs
    2. increasing marginal costs
    3. decreasing average costs
    4. decreasing total costs

14. Diminishing marginal productivity can occur due to the following reason(s)
    1. the difficulty of monitoring and motivating larger workforces
    2. the increasing complexity of larger systems
    3. the “fixity” or permanence of some factor of production
    4. all of the above

15. If marginal costs rises above average costs, average costs must
    1. Be increasing
    2. Be decreasing
    3. Stay constant
    4. None of the above

16. If marginal costs fall below average cost, average cost must be
    1. Be increasing
    2. Be decreasing
    3. Stay constant
    4. None of the above

17. A rising average cost implies that
    1. marginal cost is equal to average cost
    2. marginal cost is above average cost
    3. marginal cost is below average cost
    4. none of the above

18. A falling average cost implies that
    1. marginal cost is above average cost
    2. marginal cost is below average cost
    3. marginal cost is equal to average cost
    4. none of the above

19. Average costs                 initially due to the presence of fixed costs and then rise due to                  
    1. fall; decreasing marginal costs
    2. fall ; increasing marginal costs
    3. rise; decreasing fixed costs
    4. rise; increasing fixed costs

20. Average costs            initially due to the presence of fixed costs and then         due to increasing marginal costs
    1. rise; rise
    2. rise; fall
    3. fall; rise
    4. fall; fall

21. Which of the following is true
    1. Increasing output always leads to increase in profits
    2. Increasing outputs increase profits if price is above marginal cost
    3. Increasing output increases profits if price is lea than marginal costs
    4. Increasing output always decreases profits

22. If long run average costs are constant with respect to output, you have
    1. Increasing returns to scale
    2. Decreasing returns to scale
    3. Constant returns to scale
    4. None of the above

23. If long run average costs rise with output, you have
    1. Increasing returns to scale
    2. Decreasing returns to scale
    3. Constant returns to scale
    4. None of the above

24. If long run average costs fall with output, you have
    1. Increasing returns to scale
    2. Decreasing returns to scale
    3. Constant returns to scale
    4. None of the above

25. When a firm is experiencing decreasing marginal costs, it implies
    1. marginal productivity is decreasing
    2. workers are getting more unproductive
    3. a constant marginal productivity
    4. increasing marginal productivity

26. When a firm is experiencing decreasing marginal costs, it could be because
    1. The average costs are increasing
    2. The firm is going down its learning curve
    3. The firm’s marginal productivity is increasing
    4. Both C and D

27. The marginal cost curve:
    1. Usually declines initially as output increases and then rises with further increases in output
    2. Is equal to the average variable cost curve
    3. Usually rises initially as output increases and declines with further increases in output
    4. Is always constant

28. Average costs
    1. fall at all levels of output
    2. are falling when marginal costs are below average costs and rising when marginal costs are above average costs
    3. are falling when marginal costs are above average costs and rising when marginal costs are below average costs
    4. does not vary with output

29. What are economies of scale?
    1. decreasing average costs as production increases
    2. increasing average costs as production increases
    3. increasing fixed costs as production increases
    4. none of the above

30. Economies of scale are also known as
    1. Increasing returns to scale
    2. Decreasing returns to scale

1. 3. Constant returns to scale
   4. None of the above

31. All of these could be sources of economies of scale except
    1. Investment in more efficient technology
    2. Specialization
    3. A bottleneck procedure
    4. Discounts on bulk purchase of inputs

32. A firm could experience diseconomies of scale if
    1. One of its inputs is fixed
    2. Marginal costs are rising
    3. All of its inputs are variable
    4. Both A & B

33. Diseconomies of scale are also known as
    1. Increasing returns to scale
    2. Decreasing returns to scale
    3. Constant returns to scale
    4. None of the above

34. You would expect that your firm is experiencing a constant returns to scale if
    1. Long run average costs increase with output
    2. Long run average costs decrease with output
    3. Long run average costs are constant with respect to output
    4. None of the above

35. You would expect that your firm is experiencing increasing returns to scale if
    1. Long run average costs increase with output
    2. Long run average costs decrease with output
    3. Long run average costs are constant with respect to output
    4. None of the above

36. You would expect that your firm is experiencing decreasing returns to scale if
    1. Long run average costs increase with output
    2. Long run average costs decrease with output

1. 3. Long run average costs are constant with respect to output
   4. None of the above

37. If your long-run costs exhibit increasing returns to scale, securing big orders leads you to
    1. Increase average costs
    2. Reduce average costs
    3. Keep the average costs constant
    4. None of the above

38. When there are economies of scale,
    1. per-unit costs increase as output increases
    2. per-unit costs decrease as output increases
    3. per-unit costs are constant as output increases
    4. output does not affect per-unit costs

39. A firm experiencing constant economies of scale will have a long-run average cost curve that is:
    1. upward sloping
    2. vertical
    3. downward sloping
    4. horizontal

40. As a table manufacturing company produces more tables, the average total cost of each table produced increases. This could be because:
    1. Total fixed costs are decreasing as more tables are produced
    2. There are economies of scale
    3. There are diseconomies of scale
    4. Total variable cost is decreasing as more tables are produced.

41. The ability to lower the average costs of production as the quantity produced increases is called
    1. Economies of scale
    2. Economies of scope
    3. Diseconomies of scale
    4. Diseconomies of scope

42. Learning curves mean
    1. you learn from experience

1. 2. current production decreases future unit costs
   3. production today leads to lower costs in the future
   4. All of the above

43. Eddys’ Electronics found that instead of producing a dvd player and a gaming system separately, it is cheaper to incorporate dvd playing capabilities in their new version of the gaming system. Eddy’s is taking advantage of
    1. Economies of Scale
    2. Learning curve
    3. Economies of Scope
    4. Decreasing marginal costs

44. What is a synergy or cost complementarity?
    1. the cost of producing different products offered by separate companies would be more expensive when produced by one company
    2. the cost of producing different products offered by separate companies is higher than when produced by one company
    3. the cost of producing different products offered by separate companies is equal to when the products are produced by one company
    4. None of the above

45. What are economies of scope?
    1. lower average costs when multiple different products are produced
    2. higher average costs when multiple different products are produced
    3. Constant average costs when multiple different products are produced
    4. none of the above

46. What are economies of scope?
    1. the cost of producing two products jointly by one firm is more than the cost of producing them separately
    2. the cost of producing two products jointly by one firm is lesser than the cost of producing them separately
    3. the cost of producing two products jointly by one firm is equal to the cost of producing them separately
    4. none of the above

47. Farmers rotate their crops between corn and soybean to increase crop yields. This behavior exhibits
    1. Economies of scale
    2. Economies of scope
    3. Diseconomies of scale
    4. Diseconomies of scope

48. After sugar refiner has produced fine sugar for baking purposes, what is left over is used to produce molasses. This technology exhibits
    1. Economies of scale
    2. Economies of scope
    3. Diseconomies of scale
    4. Diseconomies of scope

49. A firewood supplier has a very seasonal demand for its product. Its transport trucks lay idle during the warmer parts of the year. It can exploit economies of scope if
    1. It merges with a manufacturer of wooden Christmas ornaments
    2. It turns into a rental trucking company during the warmer months for other seasonal producers such as ice- cream makers
    3. It starts producing other seasonal products that would sell mostly during the warmer months such as rustic lawn chairs
    4. B and C

50. An airlines realizes that instead of offering free checked in baggage, they could put a charge on checked baggage without the demand for the tickets decreasing. The space saved can be used to carry priority mail packages, with hardly any additional costs. The airlines has realized
    1. Economies of scale
    2. Economies of scope
    3. Diseconomies of scale
    4. Diseconomies of scope

51. The ability to lower the average costs over total production as more products are introduced
    1. Economies of scale
    2. Economies of Scope
    3. Diseconomies of Scale
    4. Diseconomies of Scope

52. A food company trying to increase its profits by expanding in to the soft drinks business is an example of
    1. Economies of scale
    2. Economies of Scope
    3. Diseconomies of Scale
    4. Diseconomies of Scope

53. It costs firm A $800 to produce five radios and it costs firm B $500 to produce five batteries. If Firm A merges with

firm B, it can produce both the five radios and the five batteries for $1000. The firm has experienced

1. 1. Economies of Scale
   2. Economies of Scope
   3. Diseconomies of Scale
   4. Diseconomies of Scope

54. What are diseconomies of scope?
    1. the cost of producing two products jointly by one firm is more than the cost of producing them separately
    2. the cost of producing two products jointly by one firm is lesser than the cost of producing them separately
    3. the cost of producing two products jointly by one firm is equal to the cost of producing them separately
    4. none of the above

55. Ray’s Radios believed the synergies between radio production and battery production could be realized if he expanded. However, due to overseeing the battery expansion Ray devoted less time to the radio business leading to the radio unit costs increasing. Ray’s Radios is experiencing
    1. Economies of scale
    2. Economies of scope
    3. Diseconomies of scale
    4. Diseconomies of scope

56. Ray’s Radios believed the synergies between radio production and battery production could be realized if he expanded. However, due to overseeing the battery expansion Ray devoted less time to the radio business leading to the radio unit costs increasing. At this point, Ray’s Radios should
    1. Increase production of the batteries
    2. Divest itself from the production of the batteries
    3. Shut down the production of the batteries
    4. None of the above

57. A food truck operator originally produced hamburgers and hotdogs. To serve the tastes of their various customers, the hot dog vendor decides to start producing turkey dogs and ham sandwiches as well. Since the new products were introduced, average costs rose dramatically. The vendor is experiencing
    1. Economies of scale
    2. Economies of scope
    3. Diseconomies of scale
    4. Diseconomies of scope

58. Which of these statements are FALSE
    1. If production exhibits diseconomies of scope, firm should reduce the number of products to reduce costs.
    2. If production exhibits diseconomies of scope, firm should increase the number of products to reduce costs.

1. 3. If production exhibits economies of scope, firm should increase the number of products to reduce costs.
   4. If production exhibits economies of scope, firm should increase the number of products to reduce costs.

59. It costs firm A $800 to produce five radios and it costs firm B $500 to produce five batteries. If Firm A merges with firm B, it can produce both the five radios and the five batteries for $1500. The firm has experienced
    1. Economies of Scale
    2. Economies of Scope
    3. Diseconomies of Scale
    4. Diseconomies of Scope

60. Wine Distribution Merger

Two of UK’s larger wine distribution companies, Bibendum and PLB, merged their businesses in October 2014. Bibendum is primarily a restaurant supplier while PLB focuses on supplying wines to retailers. Does this suggest a mechanism through which the merger might create value?

61. Swing shift

Your firm prints the novelty baseball cards that candy makers include in their bubblegum. Since you regularly sell 100,000 cards per week, you invested in four separate production lines that can each produce 25,000 cards in a standard 40 hour work week. Now a few of the candy makers are increasing their orders so that you will need to produce 150,000 cards per week, at least temporarily. If you produce these cards by adding a swing shift from 4pm to midnight, you will have to pay workers time and a half. What does this imply for the shape of your short-run marginal cost curve? What does it imply for your pricing?

62. Expansion

Your firm prints the novelty baseball cards that candy makers include in their bubblegum. Since you regularly sell 100,000 cards per week, you invested in four separate production lines that can each produce 25,000 cards in a standard 40 hour work week. Now a few of the candy makers are signed long term contract that will increase their orders so that you will need to produce 150,000 cards per week. If you can invest in two new production lines at the same cost as your previous four, what does this imply for the shape of your long-run marginal cost curve? What does it imply for changes in your pricing?

63. Ceramics

The ArtHaus by Antonia continually introduces new pattern of ceramic plates periodically. She can produce a batch of 1,000 potentially useable units per week. However, between the shaping, firing, painting, and glazing, many are discovered to be flawed through the process and must be discarded. However, Antonia can determine where the more common flaws develop and adjust the production process to eliminate these. Her yield rate for the initial batch is usually 60%, but increase by 2% with each additional batch up to 100%. What best describes her cost schedule? How many batches does it take her to reach 10,000 units? 20,000 units?