Scale of production 1) Considering the notions of returns to scale and economies of scale , which of the following statements is correct? a) returns to scale focus on how output changes in proportion to the quantity of inputs used, while economies of scale look at how costs change in proportion to the output produced. b) economies of scale impose the restriction that inputs increase by the same proportionate amount, while returns to scale do not. c) if a firm exhibits increasing returns to scale, then it experiences diseconomies of scale. d) A firm experiences diseconomies of scale if average costs do not change as the output produced increases. 2) The long-run total cost function of a firm is TC=20q (where q is the quantity produced), which of the following statements is correct? a) the average costs of the firm are equal to 30 b) the firm exhibits constant returns to scale. c) the average costs fall as the quantity produced increases. d) the average costs rise as the quantity produced increases. 3) If a production function exhibits increasing returns to scale, the average cost a) decreases as output rises. b) increases as output rises. c) remains constant as output rises. d) first decreases and then increases as output rises.

Question

Scale of production 1) Considering the notions of returns to scale and economies of scale , which of the following statements is correct? a) returns to scale focus on how output changes in proportion to the quantity of inputs used, while economies of scale look at how costs change in proportion to the output produced. b) economies of scale impose the restriction that inputs increase by the same proportionate amount, while returns to scale do not. c) if a firm exhibits increasing returns to scale, then it experiences diseconomies of scale. d) A firm experiences diseconomies of scale if average costs do not change as the output produced increases. 2) The long-run total cost function of a firm is TC=20q (where q is the quantity produced), which of the following statements is correct? a) the average costs of the firm are equal to 30 b) the firm exhibits constant returns to scale. c) the average costs fall as the quantity produced increases. d) the average costs rise as the quantity produced increases. 3) If a production function exhibits increasing returns to scale, the average cost a) decreases as output rises. b) increases as output rises. c) remains constant as output rises. d) first decreases and then increases as output rises.

Answer 1

1) The correct answer is a) returns to scale focus on how output changes in proportion to the quantity of inputs used, while economies of scale look at how costs change in proportion to the output produced.Returns to scale refers to the change in output resulting from a proportional increase in all inputs. Economies of scale, on the other hand, refer to the cost advantages that a firm can achieve by increasing the scale of production.2) The correct answer is b) the firm exhibits constant returns to scale.The long-run total cost function given is TC = 20q. This implies that the total cost is directly proportional to the quantity produced. In this case, the firm exhibits constant returns to scale, meaning that the output increases at the same rate as the inputs increase.3) The correct answer is a) decreases as output rises.If a production function exhibits increasing returns to scale, it means that the output increases at a faster rate than the inputs increase. As a result, the average cost decreases as output rises.

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