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Exam 5: Production Technology and Cost

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Question 111

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Suppose that in 2010 ABC Corp. produced 500 million units of a good at an average cost of $2, and in 2011 ABC Corp. expanded its plant capacity and produced 600 million units at an average cost of $1.80. In this range, one can conclude that ABC Corp. is experiencing:

A) economies of scale.
B) diseconomies of scale.
C) neither economies of scale or diseconomies of scale.
D) diminishing marginal product.

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Question 112

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Suppose that your firmʹs marginal cost of producing a pencil is 5 cents and the average cost of producing a pencil is 3 cents. If your firm is interested in minimizing average total costs, what should your firm do?

A) Increase production.
B) Decrease production.
C) Maintain production at the current level.
D) Look for ways to increase fixed costs.

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Question 113

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Recall the Application about the production cost of mobile phones to answer the following question(s). -Recall the Application. The rechargeable battery is the largest cost associated with producing mobile phones.

Which of the following are included in calculating economic costs?

$\begin{array}{|c|c|c|c|c|c|c|}\hline \text { Number of Figs } & V C & M C & A V C & F C & T C & A T C \\\hline 0 & & & & 100 & & \\\hline 1 & 90 & 90 & & & & \\\hline 2 & & & & & & 135 \\\hline 3 & & & 80 & & & \\\hline 4 & & & & & 400 & \\\hline\end{array}$ Table 5.4 -Table 5.4 presents the cost schedule for Davidʹs Figs. If David produces two figs, Davidʹs average variable costs are:

In the short run, at least one factor of production is fixed. This implies that beyond some level of output a firm will:

What are indivisible inputs and what are their implications for economies of scale?

Figure 5.1 -Refer to Figure 5.1, which shows a family of average cost curves. The average total cost at a given level of output is represented by:

Figure 5.2 -Figure 5.2 presents a firmʹs marginal, average total, average fixed, and average variable cost curves. The firm minimizes average total costs by producing _______ units.