AK Microeconomics – Chapter 7. 44. CHAPTER SEVEN. Answers to Self Test
Questions. 1. a) Plant 3 b) $36. 2. A: constant returns to scale. B: economies of ...
AK Microeconomics – Chapter 7
CHAPTER SEVEN Answers to Self Test Questions 1. a) Plant 3 b) $36 2. A: B: C: D:
constant returns to scale economies of scale economies of scale diseconomies of scale
3. a) AC increases $3.64 and there are diseconomies of scale b) AC decreases $1.60 and there are economies of scale c) AC is unchanged and there are constant returns to scale 4. a) See the figure below
Answers to Study Guide Questions 1. 2. 3. 4. 5. 6. 7.
False: all inputs are variable. True. True. False: average cost decreases. False: it could decline but it could also be horizontal or rise. False: these are examples of technical economies of scale. True.
44
AK Microeconomics – Chapter 7
8. False: economic capacity is where the AC is at a minimum; the most productive point is where AVC is at a minimum. 9. True. 10. False: the minimum point on its long-run average cost curve. 11. 12. 13. 14. 15.
a c b c b
16. 17. 18. 19. 20.
b c c b d
21. 22. 23. 24. 25.
a a d b c
26. 27. 28. 29. 30.
b b b c d
31. 32. 33. 34. 35.
a b e e e
36. Key Problem a) See Figure 7.8 Figure 7. 8 (completed)
b) It is easiest to answer this question by referring to the data in Table 7.3, although the answers could also be read off the graph. Output: Plant
30 1
40 2
50 2
60 3
70 3
c) See Figure 7.8
45
80 4
90 4
100 4
110 5
120 5
AK Microeconomics – Chapter 7
d) Plant 3 (Minimum efficient scale is the smallest level of output at which a firm is able to minimize long-run average cost.) e) Minimum long-run average cost is achieved at an output of 60. f) Yes (excess capacity exists because an output of 80 is below the output---90--- at which minimum average cost of $4 is achieved) g) 110 (economic capacity is at an output of 110 where short-run average costs are minimized) h) Between the outputs of 0 and 70, where long-run average costs are declining. i) Between the outputs of 71 and 90, where long-run average costs are constant. j) Above the output of 90, where long-run average costs are increasing. k) The market is too small for plant sizes 3, 4 and 5 since all have economic capacity at outputs above 50.
37. a) 32 38. a) plant 1: 50 plant 2: 60
b) more than 32
c) less than 32
plant 3: 80 plant 4: 90
b) 90 (plant 4) c) plant 2 d) plant 3
39. a) all are economic capacity outputs b) plant 3 c) zero and 600
46
AK Microeconomics – Chapter 7
40. case A: case B: 41. case A: case B:
constant returns to scale
case C:
economies of scale
diseconomies of scale
case D:
economies of scale
constant returns to scale
case C:
diseconomies of scale
economies of scale
case D:
economies of scale
42. a) plant 2
b) 400
43. a) constant returns to scale
c) plant 3 b) no
c) 120 workers and 300 units of capital
44. See Figure 7.11 Figure 7.11 (completed)
45. Jad: Hafiz: Ynari
constant returns to scale economies of scale and diseconomies of scale economies, constant and diseconomies of scale
47
AK Microeconomics – Chapter 7
46. Increasing returns to scale refer to the technical reasons---such as the advantages of the division of labour or machine specialization---why a firm’s output might increase by more than a given increase in inputs. Economies of scale include these reason plus pecuniary economies such as lower costs of borrowing or lower per unit costs of advertising. 47. It is a long-run concept because changing plant size can only occur in the long run.
