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ECON2010-Business Economics Topic 4: Chapter 11 Production & Output
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ECON2010-Business Economics Topic 4: Chapter 11 Production & Output

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Questions and Answers

What does the ATC1 curve represent?

  • The ATC curve for a plant with 2 knitting machines
  • The long-run cost of production
  • The ATC curve for a plant with 1 knitting machine (correct)
  • The diminishing marginal product of labor

    • How does the size of a firm's plant affect the ATC?

  • The smaller the plant, the lower the output at which ATC is at a minimum
  • The smaller the plant, the greater the output at which ATC is at a minimum
  • The larger the plant, the lower the output at which ATC is at a minimum
  • The larger the plant, the greater the output at which ATC is at a minimum (correct)

    • What is implied by diminishing marginal returns to labor in a firm's production function?

  • Long-run cost minimization
  • Short-run U-shaped cost curves for MC, AVC, and ATC (correct)
  • Decreasing returns to scale
  • Increasing marginal returns to capital

    • How do diminishing marginal returns to capital affect a firm's cost curves?

    <p>Lead to U-shaped cost curves for MC, AVC, and ATC</p> Signup and view all the answers

    In what way does plant variation influence short-run cost curves?

    <p>By creating different ATC curves for each output level</p> Signup and view all the answers

    What does ATC3 represent in the text provided?

    <p>ATC curve for a plant with 3 knitting machines</p> Signup and view all the answers

    How is the LRAC curve defined in the text?

    <p>Planning curve for minimizing production costs</p> Signup and view all the answers

    What is the purpose of the LRAC curve according to the text?

    <p>To minimize the cost of producing a given output</p> Signup and view all the answers

    What does the LRAC curve help the firm decide?

    <p>The plant with the lowest ATC</p> Signup and view all the answers

    How many knitting machines are required to produce 13 sweaters a day according to the text?

    <p>2 knitting machines</p> Signup and view all the answers

    What is the main difference between economies of scale and diseconomies of scale?

    <p>Economies of scale lead to falling average cost, while diseconomies of scale lead to rising average cost.</p> Signup and view all the answers

    What does minimum efficient scale refer to in the context of LRAC curve?

    <p>It is the output level at which LRAC reaches its lowest point.</p> Signup and view all the answers

    What happens to long-run average cost as output increases in case of constant returns to scale?

    <p>Long-run average cost remains constant.</p> Signup and view all the answers

    If a firm moves beyond the minimum efficient scale output level, what might it experience?

    <p>An increase in production costs due to diseconomies of scale.</p> Signup and view all the answers

    How can a U-shaped LRAC curve help identify the minimum efficient scale output level?

    <p>It is the minimum point where LRAC reaches its lowest level on the curve.</p> Signup and view all the answers

    What does the firm experience when the marginal product of a worker exceeds the marginal product of the previous worker?

    <p>Increasing marginal returns</p> Signup and view all the answers

    Why does increasing marginal returns initially occur in production processes?

    <p>Due to increased division of labor</p> Signup and view all the answers

    What happens when the marginal product of a worker is less than the marginal product of the previous worker?

    <p>Decreasing marginal returns</p> Signup and view all the answers

    Why do diminishing marginal returns eventually arise in production processes?

    <p>Due to less space available for work</p> Signup and view all the answers

    Which factor leads to increased specialization and division of labor in production processes?

    <p>Increased specialization in tasks</p> Signup and view all the answers

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