ECO 3320

CHAPTER 7

1)Microsoft found that instead of producing a dvd player and a gaming system separate, it is cheaper to incorporate dvd playing capabilities in their new version of the gaming system.

Microsoft is taking advantage of

1. Economies of Scale
2. Learning curve
3. Economies of Scope
4. Decreasing marginal costs

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

3. The marginal cost curve:

1. Declines initially as output increases and rises with further increases in output
2. Is equal to the average variable cost curve
3. Rises initially as output increases and declines with further increases in output
4. Is always constant

4. The average total cost curve
   1. is downward sloping at all levels of output
   2. is downward sloping when marginal costs are decreasing and upward sloping when marginal costs are increasing
   3. is upward sloping when marginal costs are decreasing and downward sloping when marginal costs are increasing
   4. does not vary with output

5. The marginal product curve is a mirror image of
   1. The average cost curve
   2. The average fixed cost curve
   3. The total cost curve
   4. The marginal cost curve

6. As long as marginal cost is decreasing, marginal product is

1. less than average product.
2. greater than average product.
3. equal to average output.
4. equal to total product.

7. When there are economies of scale,

5. per-unit costs increase as output increases
6. per-unit costs decrease as output increases
7. per-unit costs are constant as output increases
8. output does not affect per-unit costs

8. Diminishing marginal returns occur because
   1. All inputs are variable in the short-run
   2. All inputs are variable in the long-run
   3. Some inputs are fixed and some inputs are variable in the short-run
   4. None of the above

9. All these curves are U-shaped except
   1. Average fixed cost curve
   2. Marginal cost curve
   3. Average variable cost curve
   4. Average total cost

10. 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

11. As table manufacturing company produces more tables, the average total cost of each table produced increases. This is because:

1. Total fixed costs are decreasing as more tables are produced
2. There is economies of scale
3. There is diseconomies of scale
4. Total variable cost is decreasing as more clubs are produced.

12. The ability to lower the average costs of production for one product is possible with

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

13. The ability to lower the average costs of production for two or more products is possible with

1. Economies of scale
2. Economies of Scope

3. Diseconomies of Scale
4. Diseconomies of Scope

14. 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

15. All of these factors create economies of scale, except

1. Specialization and Division of Labor
2. Technological Factors
3. Increase in advertisement costs
4. Quantity discounts

16. Diseconomies of scale are associated with

1. Inefficiencies
2. Cost reduction
3. Improvement in technology
4. Division of labor

17. In any production process the marginal product of labor equals

1. Change in total output divided by change in labor input
2. Total output divided by total input
3. Total output
4. None of the above

18. Which of the following statements describes the presence of diminishing returns? All else equal,

1. Marginal product curve is constant
2. Marginal product curve is falling and negative
3. Marginal product curve is positive and rising
4. Marginal product curve is positive and falling

19. The term “bottleneck” refers to

1. when increasing variable inputs must share a fixed amount of complementary input.
2. “fixity” of some factor
3. None of the above
4. Both a and b

20. 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. Division of Labor
4. The “fixity’ of some factor

21. When a firm is experiencing increasing marginal costs, it implies

1. There are constant marginal productivity
2. There are decreasing average costs
3. There are decreasing marginal productivity
4. There are increasing marginal productivity

22. If average product is decreasing, then marginal product

1. Must be increasing
2. Must be greater than average product
3. Must be less than average product
4. None of the above

23. It costs a firm $80 per unit to produce product A and $50 per unit to produce B individually. If the firm can produce both products together at $120 per unit of product A and B, this exhibits signs of

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

24. It costs a firm $80 per unit to produce product A and $50 per unit to produce B individually. If the firm can produce both products together at $140 per unit of product A and B, this exhibits signs of

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

25. Average costs curves initially fall

1. Due to declining average fixed costs
2. Due to rising average fixed costs
3. Due to declining marginal costs
4. Due to rising marginal costs

26. Average costs curves later rise

1. Due to declining average fixed costs
2. Due to rising average fixed costs
3. Due to declining marginal costs