9. Average cost in the long-run is defined as _____.
TVC/Q
TC/Q
TVC + TFC/Q
none of the above
10. Economies of scale is a characteristic of production where ______.
average costs increase as output increases
total cost decreases as output increases
average cost decreases as output increases
average cost decreases as output decreases
11. Which of the following factors of production is more likely to be fixed in the short run?
The number of workers.
Changes in electricity consumed.
The location of a manufacturing plant.
The amount of materials used.
12. If a company has $1000 in variable costs and $200 in fixed costs when it produces 200 units of output and sells the units for $20 per unit, average total costs would equal ______.
$10
$6
$50
$60
13. Economies of scope occur when the total cost of producing given quantities of two goods in the same firm is ______.
more than the total cost of producing those quantities in two single product firms
more than the average cost of producing those quantities in the same firm
less than the average cost of producing those quantities in the same firm
less than the total costs of producing those quantities in two single product firms
14. Does this firm experience economies or diseconomies of scale? What type of returns to scale does this firm experience? Show your work that justifies your response.
Q = ∛L
Ans:
9) TC/Q
In the long run all factors of production and costs are variable. Hence the average cost in the long run is total cost divided by quantity.
10) average cost decreases as output increases
Economies of scale is the decrease in cost per unit when the total output increases.
11) The location of a manufacturing plant.
Among all the factors, the location of the manufacturing plant shall remain fixed in the short run.
12) $6
Average total cost = ($1000 + $200) / 200 units
= $6
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