Department of Economics
University of Lethbridge
Econ 1010A
Practice Questions – Chapter 9
1. Constant returns to scale
A) refer to the upward sloping portion of the long-run ATC curve.
B) refer to the downward sloping portion of the long-run ATC curve.
C) means long-run average total costs do not change with an increase in output.
D) are a result of rising monitoring costs and a loss of team spirit.
Use the following to answer question 2:
2. Refer to the graph above. If the firm wants to produce 900 units of output, it should
use the plant size represented by
A) SRAC1.
B) SRAC2.
C) SRAC3.
D) SRAC4.
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3. Diseconomies of scale are associated with all of the following except
A) increasing per-unit costs.
B) improved team spirit.
C) the long-run.
D) monitoring costs.
4. Which of the following provides the best explanation for diseconomies of scale?
A) Increased specialization.
B) Diminishing marginal productivity.
C) Monitoring costs.
D) Indivisible set-up costs.
Use the following to answer question 5:
5. Refer to the graph above. If the price of machinery increases, the isocost curve will
rotate
A) in and become flatter.
B) in and become steeper.
C) out and become flatter.
D) out and become steeper.
6. Total revenue is $1,000; explicit measurable costs are $500.
A) Accounting profit is $1,000.
B) Accounting profit is $500.
C) Accounting profit is $200.
D) Accounting profit cannot be determined from the figures given
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Use the following to answer question 7:
7. Refer to the graph above. If labour costs $10 per unit and machines cost $15 per unit,
then the economically efficient cost of producing 500 units of output is
A) $100.
B) $150.
C) $300.
D) impossible to determine using the information given.
8. Economies of scale are associated with all of the following except
A) decreasing per-unit costs.
B) indivisible set-up costs.
C) the long-run.
D) diminishing marginal productivity.
9. The shape of the long-run average total cost curve is primarily due to
A) technological change.
B) diminishing marginal productivity.
C) economies and diseconomies of scale.
D) indivisible set-up costs.
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10. Which of the following statements is true?
A) Any technically efficient production process is always economically efficient.
B) Any economically efficient production process is always technically efficient.
C) A production process is either economically efficient or technically efficient, but
never both.
D) A production process must always be both economically efficient and technically
efficient.
11. In real life, actual production processes are marked by all of the following except
A) economies of scope.
B) unmeasured costs.
C) indivisible costs.
D) certainty.
12. Since capital is relatively scarce in India, the economically efficient method of
producing food would probably
A) be land intensive.
B) be capital intensive.
C) not be labour intensive.
D) not be capital intensive.
13. An isoquant is a curve that represents
A) combinations of factors of production that produce equal amounts of output.
B) combinations of factors of production that cost the same amount.
C) combinations of output that can be produced from the same quantity of inputs.
D) combinations of output that can be produced at the same cost.
14. If a firm is operating at point of tangency between an isoquant and an isocost line, its
production is
A) technically efficient but economically inefficient.
B) technically inefficient but economically efficient.
C) both technically and economically efficient.
D) both technically and economically inefficient.
15. The long-run average total cost of producing 19 units of output is $56, while the
long-run average total cost of producing 20 units is $56. These numbers imply that
A) decreasing marginal productivity is present.
B) constant returns to scale are present.
C) economies of scale are present.
D) diseconomies of scale are present.
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Cost per unit
Use the following to answer question 16:
64
62
60
58
56
54
52
50
48
a
b
c
Average
total cost
15
16
17
18
19
20
21
22
23
24
Quantity
16. Refer to the graph above. The output range in region "b" is associated with
A) diminishing marginal productivity.
B) constant returns to scale.
C) economies of scale.
D) diseconomies of scale.
Use the following to answer question 17:
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17. Refer to the graph above. If a firm expected to produce 300 units when it built its plant
but now desires to expand its output to 500 units in the short-run, it will use the plant
size represented by
A) SRAC1.
B) SRAC2.
C) SRAC3.
D) SRAC4.
18. The level of production at which all economies of scale have been captured and
production cost is at its lowest is referred to as the
A) technically efficient level of production.
B) economically efficient level of production.
C) minimum efficient level of production.
D) minimum profitable level of production.
19. In real life, actual production processes are marked by all of the following except
A) economies of scope.
B) learning by doing and technological change.
C) perfectly divisible costs.
D) uncertainty.
20. The long-run average total cost of producing 12 units of output is $54; the long-run
average total cost of producing 13 units is $56. These numbers imply that
A) economies of scale are present.
B) diseconomies of scale are present.
C) economies of scope are present.
D) diminishing marginal productivity is present.
21. Generally, as the size of a firm increases
A) team spirit increases.
B) marginal productivity rises.
C) per-unit production costs fall.
D) monitoring costs increase.
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22. Globalization has made economies of scope
A) more important to firms because global corporations can segment the production
process.
B) more important to firms because global corporations do not have to segment the
production process.
C) less important to firms because global corporations can segment the production
process.
D) less important to firms because global corporations do not have to segment the
production process.
Cost per unit
Use the following to answer question 23:
64
62
60
58
56
54
52
50
48
a
b
c
Average
total cost
15
16
17
18
19
20
21
22
23
24
Quantity
23. Given the long-run average total cost curve above, for the seller to be able to achieve the
minimum efficient scale of production he must expect to receive a price of at least
A) $50.
B) $52.
C) $54.
D) $58.
24. According to the text, globalization has led to greater North American specialization in
all of the following except
A) marketing.
B) manufacturing.
C) advertising.
D) distribution.
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25. In the long-run, a firm has complete control over all of the following variables except:
A) production technology.
B) plant size.
C) the supply of inputs.
D) the demand for inputs.
Use the following to answer question 26:
26. Refer to the graph above.
A) A.
B) B.
C) C.
D) D.
The economically efficient point of production is at point
27. The long-run average total cost curve is typically
A) downward sloping at first but then upward sloping.
B) upward sloping at first but then downward sloping.
C) always downward sloping.
D) always upward sloping.
28. If the average total cost of supplying a good exceeds the price at which the good can be
sold, then entrepreneurs have
A) an incentive to supply the good.
B) no incentive to supply the good.
C) an incentive to supply only a small amount of the good.
D) an incentive to raise the average total cost of producing the good.
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29. The long-run average total costs of production curve
A) rises as output increases when production experiences economies of scale.
B) is explained by decreasing marginal productivity.
C) passes through the minimum point of each short-run average total cost curve.
D) is considered to be an envelop curve because each short-run average total cost curve
touches it at only one level of output.
30. Diseconomies of scale are associated with
A) an upward-sloping long-run average total cost curve.
B) an upward-sloping short-run average total cost curve.
C) a downward-sloping long-run average total cost curve.
D) a downward-sloping short-run average total cost curve.
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