Long Run Costs

Question 1

Economies of scale

Answer 1

Occur when a firm experiences falling long-run average total costs as it expands output

Question 2

Constant returns to scale

Answer 2

Occur when a firm experiences constant long-run average total costs as it expands output

Question 3

Diseconomies of scale

Answer 3

Occur when a firm experiences rising long-run average total costs as it expands output

Question 4

Increasing returns to scale

Answer 4

If a firm doubles its inputs it more than doubles its output

Question 5

Bulk buying opportunities

Answer 5

When a firm experiences falling unit input costs as it expands output

Question 6

Horizontal integration

Answer 6

Where a firm merges with another firm at the same stage of production as itself

Question 7

Vertical integration

Answer 7

Where a firm merges with another firm at an earlier (backward) or later (forward) stage of production

Question 8

Conglomerate integration

Answer 8

Where a firm buys another firm in an unrelated industry.
This diversification may reduce risk to changes in economic conditions

Question 9

The minimum efficient scale

Answer 9

The level of output at which a firm first experiences the minimum possible level of long-run average costs