Question

The market for the products of tool and die manufacturers is relatively easy to enter and includes a large number of firms that produce a variety of fixtures, dies, molds, machine tools, cutting tools, gauges, and other tools used in other manufacturing processes.

What would the long run supply curve look like if expansion did not increase wages (or any other input prices)?

a. upwardly sloping

b. flat (horizontal)

c. downward sloping

If when tool and die manufacturers expand, their average total cost begins to increase, their production exhibits:

a. economies of scale

b. constant economies of scale

c. diseconomies of scale

Answer 1

1. What would the long run supply curve look like if expansion did not increase wages (or any other input prices)?

Option B (Flat (horizontal)) is correct.

Reason: In the long run any firm in market is free to enter and exit therefore in the long-run price will constant in the industry and supply curve will be flat. It is because if price rise new firm will enter and if price fall new firm will exit causing long run supply constant at one price.

2. If when tool and die manufacturers expand, their average total cost begins to increase, their production exhibits:

Option c (disecomies of scale) is correct

Reason: If rise in production or output will cause rise in ATC, then firm is in diseconmies of scale.