Chapter 12

Question 1

Economies of Scale

Answer 1

a condition in which, when a firm increases its plant size and labor employed by the same percentage, its output increases by a larger percentage and its average total cost decreases

Question 2

Ways to create economies of scale

Answer 2

specialization of labor, specialization of capital

Question 3

Diseconomies of scale

Answer 3

a condition in which, when a firm increases its plant size and labor employed by the same percentage, its output increases by a smaller percentage and its average total cost increases

Question 4

Conditions for diseconomies of scale

Answer 4

larger corporations create a more difficult route for carrying messages (management complexity)

Question 5

Constant returns to scale

Answer 5

a condition in which, when a firm increases its plant size and labor employed by the same percentage, its output increases by the same percentage and its average total cost remains constant