Question

1) A quick auto service increases the size of its shop, enabling it to purchase cost-saving capital equipment so that the cost of servicing a car falls, this would be an example of
a) decreasing economies of scale
b) increasing transactions costs
c) monitoring
d)economies of scale

2) Costs as measured by accountants generally do not include any
a)explicit rental rates
b)opportunity costs of the firm
c)implicit rental rates
d)depreciation

3) Total variable cost
a)initially decreases and then increases as output increases
b)decreases as output changes
c)does not change as output changes
d)increases as output changes

4)A price ceiling
a) creates a deadweight loss comprised of only lost consumer surplus
b)creates a deadweight loss comprised of only lost producer surplus
c)decreases the deadweight loss from a competitive market
d)creates a deadweight loss comprised of lost consumer surplus and lost producer surplus

Answer 1

1. An example of d). Economies of scale which defines, when the producer increases the production of Goods or services to reduce the costs.

2. Accountants do not include b) opportunity costs of the firm as they are the costs forgone for opting an alternative. Hence the cost of the alternative is taken and not of what is lost.

3. Total variable cost curve d) increases as output changes because with the employment of more and more variables the output increases at every stage.

4.price ceiling b) deadweight loss comprised of only lost producer surplus as price ceiling binds the producers to not charge the consumer any more higher prices than that set through this.