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31) The level of output at which all economies of scale have been exhausted is known as

A) constant returns to scale.

B) minimum efficient scale.

C) the economically efficient output level.

D) optimal economic size.

32) Minimum efficient scale is defined as the level of output at which

A) all economies of scale are exhausted.

B) diminishing returns affect average total cost.

C) the firm's long-run average total cost starts falling.

D) the maximum output is produced.

Figure 11-11

 

Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCa, ATCb and ATCc.

33) Refer to Figure 11-11.  The minimum efficient scale of output is reached at what rate of output?

A) 10,000 workers

B) 5,000 picture frames

C) 20,000 picture frames

D) 10,000 picture frames

34) Refer to Figure 11-11.  For output rates greater than 20,000 picture frames per month,

A) the firm will not make a profit because the average cost of production will be too high.

B) the firm will experience diseconomies of scale.

C) the firm will experience diminishing returns.

D) the short-run average total cost will equal the long-run average total cost of production.

35) Refer to Figure 11-11.  Constant returns to scale

A) occur for output rates greater than 5,000 picture frames.

B) occur between 5,000 and 20,000 picture frames per month.

C) occur between 10,000 and 20,000 pictures frames per month.

D) will shift the long-run average cost curve downward.

36) Refer to Figure 11-11.  In the short run, if the firm sells fewer than 5,000 picture frames per month,

A) it should produce with the scale of operation associated with ATCa.

B) it should produce with the scale of operation associated with ATCb.

C) it should produce with the scale of operation associated with ATCc.

D) it will experience constant returns to scale.

37) Refer to Figure 11-11.  If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATCc,

A) the firm will not be operating efficiently.

B) the firm will be operating efficiently.

C) the firm would lower its average costs by reducing its scale of operation.

D) the firm will not be able to earn a profit.

Table 11-8

Quantity  (sets)

Long Run Average Cost

100

$40

200

35

300

30

400

30

500

35

Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data.

38) Refer to Table 11-8.  Elegant Settings experiences

A) economies of scale up to an output level of 400.

B) diminishing returns up to an output level of 400.

C) increasing returns beyond an output level of 400.

D) economies of scale at an output of 300 or less and diseconomies of scale at an output level above 400.

39) Refer to Table 11-8.  What is the minimum efficient scale of production?

A) 100 units

B) 200 units

C) 300 units

D) 400 units

40) The River Rouge plant was built by the Ford Motor Company in the 1920s to produce the company's Model A car. Which of the following is evidence that the River Rouge plant suffered from diseconomies of scale?

A) Despite an expensive advertising campaign, the Model A did not earn the company a profit.

B) Model A cars made at the River Rouge plant failed to earn Ford a profit. Ford eventually constructed smaller plants to make the Model A at a lower average cost.

C) Model A cars made at the River Rouge plant failed to earn a profit. Ford reduced the average cost of the Model A by cutting its employees' wages.

D) Model A cars made at the River Rouge plant failed to earn a profit because the price of steel used to manufacture the Model A rose when workers in the steel industry went on strike.

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