The Long Run

Wolfsburg Wagon is a small automaker. Wolfsburg's long run average total cost is shown in the table. For what levels of output does the firm experience increasing returns to scale?

• 1-4
• 4-6
• 6-8
• 1-8

TRUE or FALSE?

The short-run average TOTAL cost can never be less than the long-run average total cost.

• TRUE

• FALSE

TRUE or FALSE?

The short-run average VARIABLE cost can never be less than the long-run average total cost.

• TRUE

• FALSE

Which of the following must be true if a firm is experiencing economies of scale? 

• All costs are explicit.
  
• Economic profits decrease as the firm’s output increases.
  
• Long-run average total cost remains constant as the firm’s output decreases.
  
• Long-run average total cost decreases as the firm’s output increases.
  

Which of the following must be true of the long run? 

• It is at least one year in duration. 
• At least one factor of production is fixed. 
• All factors of production are variable. 
• Average total costs are constant. 

If the output of a firm doubles when the firm doubles all of its inputs, the firm must be experiencing:

• economies of scale
  
• constant returns to scale 
• decreasing returns to scale 
• increasing returns to scale 

At output level Q, the firm can minimize costs by using factory size ______.

• SRATC

• SRATC1

• SRATC2

To produce output level Q1, the firm should use factory size ______.

• SRATC

• SRATC1

• SRATC2

TRUE or FALSE?
The short-run average total cost curve declines and then increases as inputs increase because of economies & diseconomies of scale.

• TRUE
• FALSE

Which one of the following would most likely be caused by a firm growing too large and experiencing difficulties in communication and coordination?

• Economies of scale
• Constant returns to scale
• Increasing returns to scale
• Decreasing returns to scale