Multiple Choice Questions

1. Microsoft found that instead of producing a DVD player and a gaming system separate, it is cheaper to
incorporate DVD playing capabilities in their new version of the gaming system. Microsoft is taking
advantage of C
a. Economies of Scale
b. Learning curve
c. Economies of Scope
d. Decreasing marginal costs

2. As a golf club production company produces more clubs, the average total cost of each club produced
decreases. This is because: C
a. total fixed costs are decreasing as more clubs are produced.
b. average variable cost is decreasing as more clubs are produced.
c. there are scale economies.
d. total variable cost is decreasing as more clubs are produced

3. Average costs curves initially fall A

a. Due to declined average fixed costs
b. Due to rising average fixed costs
c. Due to declining marginal costs
d. Due to rising marginal costs

4. What might you reasonably expect of an industry in which firms tend to have economies of scale? D
a. Exceptional competition among firms
b. A large number of firms
c. Highly diversified firms
d. A small number of firms

5. A security system company’s total production costs depend on the number of systems produced
according to the following equation: Total Costs = $10,000,000 + $2000*quantity produced. Given these
data, which of the following is a false statement? C
a. There are economies of scale.
b. There are fixed costs associated with this business.
c. There are diseconomies of scale.
d. A firm that produces a larger output has a cost advantage over a smaller firm.

6. Following are the costs to produce Product A, Product B, and Products A and B together. Which of the
following exhibits economies of scope? A
a. 50, 75, 120
b. 50, 75, 125
c. 50, 75, 130
d. All of the above
 7. According to the law of diminishing marginal returns, marginal returns: D
a. diminish always prior to increasing.
b. diminish always.
c. diminish sometimes.
d. diminish eventually.

8. It costs a firm $80 per unit to produce product A and $50 per unit to produce B individually. If the firm can
produce both products together at $140 per unit of product A and B, this exhibits signs of D
a. Economies of scale
b. Economies of Scope
c. Diseconomies of Scale
d. Diseconomies of Scope

9. Once marginal cost rises above average cost, A

a. Average costs will increase
b. Average costs are unaffected
c. Average costs will decrease
d. None of the above

10. A company faces the following costs at the respective production level in addition to its fixed costs of
$50,000: A

Quantity Marginal Cost Sale Price Marginal Return

1 $10,000 $20,000 $10,000

2 $11,000 $20,000 $9,000

3 $12,000 $20,000 $8,000

4 $13,000 $20,000 $7,000

5 $14,000 $20,000 $6,000

How would you describe the returns to scale for this company?

a. Increasing
b. Decreasing
c. Constant
d. Marginal