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Questions and Answers
Which of the following scenarios best illustrates the concept of economies of scale?
Which of the following scenarios best illustrates the concept of economies of scale?
- A small bakery that produces a limited number of specialized cakes at a high cost per cake.
- A large automobile manufacturer that reduces its production costs per vehicle by implementing automation and bulk purchasing of raw materials. (correct)
- A consulting firm that charges higher hourly rates for its services as it gains more clients and prestige.
- A local grocery store that increases its prices during a snowstorm due to increased demand.
A company decides to invest in new technology that increases production capacity but also raises fixed costs. Under what condition would this investment be most economically justifiable?
A company decides to invest in new technology that increases production capacity but also raises fixed costs. Under what condition would this investment be most economically justifiable?
- When the company aims to reduce its market share to focus on niche products.
- When the company expects that the increase in production will lead to a proportionally larger decrease in variable costs.
- When the company operates in a market with highly inelastic demand. (correct)
- When the company anticipates a significant decrease in demand for its product.
What is the most likely outcome if a firm continues to increase its scale of production beyond the minimum efficient scale (MES)?
What is the most likely outcome if a firm continues to increase its scale of production beyond the minimum efficient scale (MES)?
- The firm will experience diseconomies of scale, leading to increasing average total costs. (correct)
- The firm will continue to experience decreasing average total costs as it leverages greater economies of scale.
- The firm's average total costs will remain constant due to constant returns to scale.
- The firm will be able to perfectly optimize every aspect of its production process.
A company is considering whether to outsource its customer service operations. Which of the following factors would be most critical in making this decision from a cost perspective?
A company is considering whether to outsource its customer service operations. Which of the following factors would be most critical in making this decision from a cost perspective?
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How does understanding the concept of 'learning curve' help a company that is launching a new product?
How does understanding the concept of 'learning curve' help a company that is launching a new product?
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