Chapter 7 costs of production

Question 1

Short Run

Answer 1

Time in which at least one factor of production is fixed

Question 2

Long Run

Answer 2

Time in which all inputs are variable

Question 3

Returns to scale

Answer 3

Effect of plant size on per-units costs of production

Question 4

Constant returns to scale

Answer 4

• When a firm’s output increases by the same % as the increase in inputs
• Results in a horizontal long-run average cost (LRAC) curve

Question 5

Economies of scale

Answer 5

• When’s a firm’s out put increases greater % than do its inputs
• Results in a decreasing LRAC curve

Question 6

Diseconomies of scale

Answer 6

• When a firm’s output increases by a smaller % than do its inputs
• Results in a rising LRAC curve

Question 7

Right Size of Firm

Answer 7

• Depends on the industry

- Able to take advantage of economies of scale without experiencing diseconomies

Question 8

Minimum efficient scale(MES)

Answer 8

-The smallest size of plant capable of achieving