Scope Of Economics Quiz Questions!

Economies of scale refer to the cost advantages that a firm can achieve when it increases its scale of production. As output increases, the firm can spread its fixed costs over a larger quantity of goods, resulting in a decrease in average cost. This means that the average cost per unit of production decreases as the firm produces more. This is a characteristic of economies of scale and is the reason why larger firms can often produce goods at a lower cost compared to smaller firms.

Economies of scope refer to the cost savings that a firm can achieve by producing a wider variety of goods. This means that the firm can benefit from cost efficiencies by leveraging its existing resources, such as production facilities, distribution networks, and expertise, across multiple product lines. By producing a wider variety of goods, the firm can spread its fixed costs over a larger output and achieve economies of scale. This allows the firm to reduce its average cost per unit of production and improve its profitability.

Umbrella branding aids economies of scale and scope by increasing the effectiveness of advertising through offering a broad product line under one name. This means that the company can promote multiple products under a single brand, which allows for a greater presence and reach in the market. By advertising multiple products under one brand, the company can benefit from increased brand recognition and customer loyalty, leading to higher sales and revenue. Additionally, it allows for cost savings in advertising as the company can leverage the brand's reputation and customer base across multiple products.

The correct answer is the minimum point on a U-shaped average cost curve. This is the point at which the average cost per unit of production is at its lowest. As production increases beyond this point, the average cost per unit starts to increase again. This is because at lower levels of production, fixed costs are spread over a smaller number of units, leading to higher average costs. As production increases, economies of scale are realized, leading to lower average costs. However, beyond a certain point, diseconomies of scale start to occur, causing average costs to rise again. The MES is the level of production at which average costs are minimized.

Short-run economies of scale refer to cost reductions that occur when a company increases its production capacity utilization. This means that as a company produces more goods or services using its existing resources, it can spread its fixed costs over a larger output, resulting in lower average costs per unit. These economies of scale are typically temporary and only occur in the short run, as they are dependent on the company's existing resources and production capacity. In the long run, the company may need to invest in additional resources or facilities to continue benefiting from economies of scale.

All of the options listed (labor costs, spreading specialized resources too thin, conflicts of interest, and incentive processes) can contribute to diseconomies of scale at a large firm. As a firm grows in size, labor costs may increase due to the need for more employees. Spreading specialized resources too thin can lead to inefficiencies and decreased productivity. Conflicts of interest can arise when different departments or individuals have conflicting goals or priorities. Incentive processes may become more complex and difficult to manage as the firm expands. Therefore, all of these factors can result in diseconomies of scale for a large firm.

Long-run economies of scale come from reductions in cost due to the adoption of technology that has high fixed costs, but lower variable costs. This means that as the scale of production increases, the average cost per unit decreases. In the long run, the fixed costs can be spread over a larger volume of output, leading to lower average costs. The lower variable costs associated with the technology also contribute to the overall cost reduction. Therefore, the adoption of technology with high fixed costs and lower variable costs can result in long-run economies of scale.

Capital intensive refers to a situation where factories and assembly lines represent a significant percentage of total costs. This means that a large amount of capital investment is required for the production process, such as purchasing expensive machinery and equipment. This term indicates that the production process relies heavily on capital resources rather than labor or other factors.

The use of multiple types of planes does not contribute to the strategic fit of Southwest Airlines. This is because Southwest Airlines follows a low-cost strategy, and using multiple types of planes would increase their operating costs and complexity. By using a standardized fleet of Boeing 737 aircraft, Southwest is able to reduce maintenance and training costs, increase operational efficiency, and offer lower fares to their customers.

Automotive production does not benefit from the cube-square rule's contribution to economies of scale. The cube-square rule states that as the size of a structure or system increases, its volume (cubic measurement) increases faster than its surface area (square measurement). This allows for cost savings in larger-scale operations. However, automotive production involves complex manufacturing processes and assembly lines, where the cube-square rule is not directly applicable. The economies of scale in automotive production are achieved through other factors such as specialization, standardized components, and efficient production techniques.

Administrative expenses are not considered product specific fixed costs because they are not directly tied to the production or manufacturing of a specific product. Administrative expenses typically include general overhead costs such as rent, utilities, salaries of non-production staff, office supplies, etc. These costs are incurred regardless of the volume or type of products being produced and are therefore considered as indirect costs that are not directly attributable to a specific product.

When demand for thoracic surgery is low, the market will not support a specialized surgeon. This means that when there is less demand for thoracic surgery, there will not be enough patients to sustain a specialized surgeon who only focuses on thoracic surgery. This is because specialized surgeons require a certain level of demand in order to have a steady flow of patients and maintain their practice. Therefore, in medical markets for thoracic surgery, it is not financially viable to have a specialized surgeon when the demand is low.

Carrying inventories contributes to economies of scale by minimizing the chance of stock-out. When a company maintains a sufficient level of inventory, it can meet customer demand promptly and consistently. This helps to avoid disruptions in the supply chain and ensures that customers can always find the products they need. By minimizing stock-outs, the company can maintain customer satisfaction, retain customers, and potentially attract new ones. This, in turn, can lead to increased sales and revenue for the company, contributing to economies of scale.

Ace captures many benefits through a cooperative of stores while maintaining independent store ownership, such as access to the same distribution channels as large retailers, quantity discounts, local tailored product offerings, and location in small neighborhoods. However, the one benefit that Ace does not capture through this cooperative is having a central office providing direction.

A large firm may have an advantage over a smaller firm with respect to labor because worker turnover is generally lower. This means that employees are more likely to stay with the company for a longer period of time, resulting in increased stability and continuity in the workforce. Lower turnover can also lead to cost savings for the firm, as they may not have to spend as much on recruiting and training new employees. Additionally, lower turnover can contribute to higher productivity and efficiency, as experienced employees are more familiar with the company's processes and procedures.

The movement of production from smaller to larger facilities is not a major source of scale or scope economy. Scale economy refers to the cost advantages that a firm can achieve by increasing its level of production. Scope economy refers to the cost advantages that a firm can achieve by producing a variety of products. While moving production to larger facilities may result in some cost savings due to economies of scale, it is not a major source compared to other factors such as indivisibilities and spreading of fixed costs, increased productivity of variable inputs, inventories, and engineering principles associated with the "cube-square rule".

Economies of scale along a given route refers to the cost advantages that an airline can achieve by increasing the number of flights or passengers on a specific route. As the airline operates more flights or carries more passengers on a particular route, it can spread its fixed costs over a larger number of flights or passengers, resulting in lower average costs per flight or passenger. This can lead to increased profitability for the airline on that route.

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