7. A reason for diseconomies of scale is a) gains from specialization b) costs o

Question

7. A reason for diseconomies of scale is

a) gains from specialization

b) costs of information and communication

c) dimensional facts

d) diminishing marginal physical product

9. A perfectly competitive firm is charging $7 and selling 1500 units a month. The firm raises its price by a nickel above the market price. Its profit

a) will increase

b) will decrease

c) will go to zero

d) will not change

14. The Big Box Company is a firm in a perfectly competitive industry. The average rate of return on capital in this industry is 10%. Thus, if the Big Box Company earns a 10% rate of return.

a) it can expect more firms to enter the industry

b) it earns zero economic profit

c) it earns positive economic profit.

d) it would be better off existing the industry.

e) both A and C

15. Which of the following has a barrier to entry?

a) Stans Garbage Company runs the only trash collection service in town

b) There are already many fast food restaurants in the City of Buffalo

c) Gold can only be mined in certain places in the world

d) Crystal develops a new product and patents.

Explanation / Answer

7. A reason for diseconomies of scale is

b) costs of information and communication

Economic theory predicts that a firm may become less efficient if it becomes too large. The additional costs of becoming too large are called diseconomies of scale.

Diseconomies of scale result in rising long run average costs which are experienced when a firm expands beyond its optimum scale, at Q.

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