Chapter 5 Self-test questions

The long-run average cost curve is determined by ____________.

the industry's current technology and the prices of inputs

the industry's current technology only

the prices of inputs only

None of the above

A technology exhibits economies of scale if ____________.

the firm has falling long-run average costs.

a contraction of output permits the reduction of costs per unit of output

an expansion of output causes the increase of costs per unit of output.

None of the above

Japanese car manufacturers using flexible manufacturing techniques have reduced the unit costs of car production. So they have shifted ____________

the average fixed cost curve downwards

the long-run average cost curve downwards

the long-run average cost curve upwards

the short-run average cost curve upwards

The long-run average cost curve encloses a series of short-run average total cost curves and is, therefore, also known as ____________

the optimal curve.

a restrictive curve

a flexible curve

an envelope curve

A firm is said to have encountered long-run decreasing returns when ____________

its output is increasing less than in proportion to the decrease in inputs.

its output is decreasing less than in proportion to the decrease in inputs.

its output is increasing less than in proportion to the increase in inputs.

its output is decreasing less than in proportion to the increase in inputs.

If there is too much, or too little, plant and equipment used in the production of a particular level of output ____________

the short-run average cost curve crosses the long-run average cost curve at the minimum point.

the short-run average cost curve is tangential to the long-run average cost curve

the short-run average cost curve lies above the long-run average cost curve

the long-run average cost curve lies above the short-run average cost curve

In the long run ____________

the lowest obtainable cost for each possible output is represented by the short-run average cost curve

all costs are fixed.

all inputs are fixed.

all inputs may be varied

When the fixed plant used is optimal for the amount of output that is produced ____________

the short-run average cost curve is above the long-run average cost curve

the short-run average total cost curve is tangential to the long-run average cost curve.

the long-run average cost curve is above the short-run average cost curve

the long-run average cost curve crosses the short-run average cost curve.

A fall in the wage rate will ____________

shift the long-run average cost and short-run average cost curves downwards

shift the long-run average cost curve but not the short-run average cost curve upwards

not shift the long-run average cost curve but will shift the short-run average cost curve upwards

not shift either curve

Methods of gaining scale economies in the electricity industry in the 1980s included ____________

increasing the number of power stations, so that the average capacity of the remaining power stations decreased

restricting by law the amount of electricity that each generator was allowed to produce

reducing the number of power stations, so that the average capacity of the remaining power stations increased

increasing the number of power stations, so that the average capacity of the remaining power stations increased

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