Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 9.A, Problem 2P
To determine
External diseconomies of scale.
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This is a graph of our firm’s costs. Label the lines on the graph using the following labels: average fixed cost (AFC), average variable cost (AVC), average total cost (ATC) and marginal cost (MC). Then label the shut down and breakeven points on the graph.
The accountants claim that we are at our profit maximizing point. You decide to investigate potential diseconomies of scale. What diseconomies of scale do you think you might find? How could these be addressed and hopefully decrease costs? (20 points)
Refer to the above diagram. Diseconomies of scale?
N
f = 0.75,
=
10000,
S= 0.04, G = 100, B
T = 150,
rr = 0.1,
=
1000,
cr = 0.5
1. Calculate the long-run equilibrium. For this, you need to find the equilibrium values of Y,
W/P, C, S, r and I.
Chapter 9 Solutions
Principles of Economics (12th Edition)
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- Company ZAP operates in car industry. When ZAP operates at full capacity (10.000 cars/month), economies of scale is reached, and cost/car is minimum. However, due to an economic crisis, the sales of ZAP decreased to 6.000 cars/month. Economic forecasts show that the crises will continue for 2-3 years more. a) As the manager of ZAP what would you do to adjust scale? Why? b) After 3 years if the demand for your cars starts to increase how would you react? Explain.arrow_forwardHow General Motors improve or operate their economies of scale?arrow_forwarda software production firm, average product has started falling and total output indicated diminishing trend. The production manager Mr. Yahya called you and asked you to see the condition of marginal product. You analyzed the situation and reported that marginal product falling more than average product. Mr. Yahya got surprised. In your opinion which situation the firm is heading to?arrow_forward
- Ike's Bikes is a major manufacturer of bicycles. Currently, the company produces bikes using only one factory. However, it is considering expanding production to two or even three factories. The following table shows the company's short-run average total cost each month for various levels of production if it uses one, two, or three factories. (Note: Q equals the total quantity of bikes produced by all factories.) Average Total Cost (Dollars per bike) Number of Factories O = 100 Q = 200 Q = 300 Q = 400 Q = 500 O = 600 1 520 400 320 400 560 800 660 480 320 320 480 660 800 560 400 320 400 520 Suppose Ike's Bikes is currently producing 500 bikes per month in its only factory. Its short-run average total cost is $ per bike. Suppose Ike's Bikes is expecting to produce 500 bikes per month for several years. In this case, in the long run, it would choose to produce bikes using On the following graph, plot the three short-run average total cost curves (SRATC) for Ike's Bikes from the previous…arrow_forwardDefine the economies and diseconomies of scale and depict graphically how they relate to the long run costs of production.arrow_forwardExercises 47-50 describe a number of business ventures. For each exercise, a. Write the cost function, C. b. Write the revenue function, R. c. Determine the break-even point. Describe what this means. 47. A company that manufactures small canoes has a fixed cost of $18,000. It costs $20 to produce each canoe. The selling price is $80 per canoe. (In solving this exercise, let x represent the number of canoes produced and sold.) 48. A company that manufactures bicycles has a fixed cost of $100,000. It costs $100 to produce each bicycle. The selling price is $300 per bike. (In solving this exercise, let x represent the number of bicycles produced and sold.) 49. You invest in a new play. The cost includes an overhead of $30,000, plus production costs of $2500 per performance. A sold-out performance brings in $3125. (In solving this exercise, letxrepresent the number of sold-out performances.) 50. You invested $30,000 and started a business writing greeting cards. Supplies cost 2¢ per card…arrow_forward
- Give business examples of short-run costs, economies of scale, and minimum efficient scale (MES).arrow_forwardA computer production facility has a daily demand rate of 6 and a daily production rate of 20. Set up costs are $100 per order. They have calculated that the economic order quantity is 250 computers. Given this info, what is the best economic production quantity?arrow_forwardWhat major company is likely facing diseconomies of scale today? Why?arrow_forward
- Moving to another question will save this response. Question 21 If a firm's production exhibits diseconomies of scale then which of the following is true? Its marginal cost is equal to its LRATC The firm is not maximizing profits Its marginal cost is strictly smaller than its LRATC Its marginal cost is strictly larger than its LRATC A Moving to another question will save this response.arrow_forwardThe long-run is a period of time long enough so that all inputs, including facility and equipment, are variable, while in the short run at least one input is fixed. Think about how much time it would take to change the scale of operation for a restaurant, for an automobile plant, for a website designing company... Does it seem that the amount of time that separates the long run from the short run is industry-specific, rather than a set period of time?arrow_forward29979995799&elSBN=97803571336068&snapshotld%3D2200166&id%3D1061547992&takeld 560 480 SRATC, 400 320 SRATC 240 160 LRATC 80 + + 100 200 300 400 500 600 700 QUANTITY (Bikes) In the following table, indicate whether the long-run average cost curve exhibits economies of scale, constant returns to scale, or diseconomies of scale for each range of bike production. Range Economies of Scale Constant Returns to Scale Diseconomies of Scale More than 400 bikes per month Fewer than 300 bikes per month Between 300 and 400 bikes per month M acer AVERAGE TOTAL COST (Dollars per barrow_forward
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