Question

Part 1

If a firm encounters diseconomies of scale, each one percent increase in all resources expands output by:

A) precisely one percent.

B) more than one percent.

C) less than the increase in total costs.

D) less than one percent.

Part 2

If a firm confronts economies of scale, a 20 percent increase in labor:

A) and all other inputs will increase output by more than 20 percent.

B) with capital fixed will increase output by 20 percent.

C) with capital fixed will increase output by more than 20 percent.

D) and a 20% increase in capital will increase output by 20 percent.

Part 3

If a firm’s long-run average cost rises as plant size and output grow, the firm confronts:

A) diseconomies of scale.

B) externalities that exceed marginal costs.

C) improvements in marginal physical product.

D) excessive overhead costs.

Part 4

If a firm confronts constant returns to scale, each one percent increase in all resources expands output by:

A) precisely one percent.

B) more than one percent.

C) more than the increase in total costs.

D) less than one percent.

Part 5

For firms encountering diseconomies of scale, output is, on average:

A) more costly as the firm expands.

B) less costly as the firm expands.

C) increasingly specialized if output falls.

D) constant unless technology advances.

Part 6

If a firm faces economies of scale, as output and capacity expands the firm becomes:

A) less profitable.

B) less efficient

C) more vulnerable to competition.

D) more efficient.

Part 7

If a firm encounters diseconomies of scale, each one percent increase in all resources expands output by:

A) precisely one percent.

B) more than one percent.

C) less than the increase in total costs.

D) less than one percent.

Answer 1

1. C) less than the increase in total costs.

Reason- Diseconomies of scale means increase in output leads to increase in cost.

2.A) and all other inputs will increase output by more than 20 percent.

Reason- Economies of scale means a change in all the inputs in same proportion leading to a change in output by greater proportion.

3. A) diseconomies of scale.

Reason- As the average cost rises with increased output, it means firm experience diseconomies of scale.

4. A) precisely one percent.

Reason- Constant returns to scale means same change in input and output.