Chapter 6: Scale Economies, Imperfect Competition, and Trade

Question 1

Economies of Scale

Answer 1

The feature of many production processes in which the per-unit cost of producing a product falls as the scale of production rises.

Question 2

Increasing Returns to Scale

Answer 2

The feature of many production processes in which the productivity of a product increases as the scale of production rises.

Question 3

Economies of scale most likely to be found . . .

Answer 3

in industries with large fixed costs in production.

Question 4

External Economies of Scale

Answer 4

• The cost per unit depends on the size of the industry but not necessarily on the size of any one firm.
• An industry will typically consist of many small firms and be perfectly competitive.

Question 5

Internal Economies of Scale

Answer 5

• The cost per unit depends on the size of an individual firm but not necessarily on that of the industry.
• The market structure will be imperfectly competitive with large firms having a cost advantage over small.

Question 6

Monopolistic Competition

Answer 6

A market structure that is a cross between the two extremes of perfect competition and monopoly.

Question 7

Imperfect Competition

Answer 7

• Firms are aware that they can influence the price of their product.
• Price setter, not price taker

Question 8

Intraindustry Trade

Answer 8

Trade between countries that occurs within the same industry; for example, when a country exports and imports automobiles.

Question 9

Marginal Revenue

Answer 9

The extra revenue the firm gains from selling an additional unit.

Question 10

Marginal Revenue and Price

Answer 10

• Marginal revenue is always less than the price.

- Depend on 1. how much output the firm is already selling 2. slope of the demand curve.