Question

A cost-output relation for a specific plant and operating environment is the:

Select one:

a. short-run cost curve.

b. long-run total cost curve.

c. long-run marginal cost curve.

d. long-run average cost curve.

A firm's capacity is the output:

Select one:

a. maximum that can be produced in the long-run.

b. level where short-run average costs are minimized.

c. level where long-run average costs are minimized.

d. maximum that can be produced in the short-run.

Average cost declines as output expands in a production process with:

Select one:

a. constant returns to scale.

b. decreasing returns to scale.

c. decreasing returns to a factor input.

d. increasing returns to scale.

Costs that do not vary across decision alternatives are:

Select one:

a. implicit.

b. explicit.

c. sunk.

d. economic.

Each point on a long-run average cost curve is the minimum:

Select one:

a. point on the short-run marginal cost curve.

b. short-run average cost of production.

c. long-run average cost of production.

d. point on the short-run average cost curve.

Answer 1

(1) (a)

In the short run, the plant size and other operating conditions are fixed and specific. So, the cost-output relation under specific conditions is the short run total cost curve.

(2) (d)

In long run, a plant can expand and increase existing capacity.

(3) (d)

With increasing returns to scale, increase in inputs increases output more than proportionately, and average cost decreases.

(4) (c)

Sunk costs have already been incurred and do not differ across alternatives.

(5) (d)

The long run average cost curve is an envelope curve, touching the minimum points of short run average cost curves.