Scope Of Economics Quiz Questions!

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Scope Of Economics Quiz Questions! - Quiz

If you’re studying the topic of economics, then you know just how complex the social science of analyzing the production, distribution, and consumption of goods and services can be. That being said, there’s a tremendous amount of scope with the topic and the information garnered from the study can be used a plethora of ways. Do you know them? Take the quiz to find out!


Questions and Answers
  • 1. 

    Which of the following is a characteristic of economies of scale?

    • A.

      The average cost declines as output increases

    • B.

      The average cost increases as output increases

    • C.

      The average cost remains constant as output increases

    • D.

      The average costs are cheaper when a firm produces a wider variety of goods

    • E.

      The average cost curve takes the form of a U-shape

    Correct Answer
    A. The average cost declines as output increases
    Explanation
    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.

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  • 2. 

    What is the minimum efficient scale (MES) of production?

    • A.

      The point on an average cost curve where the cost per unit begins to decline more rapidly

    • B.

      The minimum point on a U-shaped average cost curve

    • C.

      The minimum level of production at a plant for it to be considered profitable

    • D.

      The level of production for a small sized plant

    • E.

      The threshold at which capacity is constraining for a firm's production

    Correct Answer
    B. The minimum point on a U-shaped average cost curve
    Explanation
    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.

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  • 3. 

    Which of the following best describes economies of scope?

    • A.

      The average cost declines as output increases

    • B.

      The average cost increases as output increases

    • C.

      The average cost remains constant as output increases

    • D.

      Savings are achieved when a firm produces a wider variety of goods

    • E.

      Savings are achieved when a firm produces a decreased variety of goods

    Correct Answer
    D. Savings are achieved when a firm produces a wider variety of goods
    Explanation
    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.

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  • 4. 

    Which of the following is not a major source of scale or scope economy?

    • A.

      Indivisibilities and the spreading of fixed costs

    • B.

      Increased productivity of variable inputs (mainly having to do with specialization)

    • C.

      Movement of production from smaller to larger facilities

    • D.

      Inventories

    • E.

      Engineering principles associated with the "cube-square rule"

    Correct Answer
    C. Movement of production from smaller to larger facilities
    Explanation
    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".

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  • 5. 

    Which of the following is not a product specific fixed cost?

    • A.

      The cost to manufacture a special die to make an aircraft fuselage

    • B.

      The cost of developing graphics software to facilitate video game development

    • C.

      The cost of a one-week training program preceding the implementation of a specific management initiative

    • D.

      The time and expense required to set up a textbook before printing it

    • E.

      The cost of administrative expenses

    Correct Answer
    E. The cost of administrative expenses
    Explanation
    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.

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  • 6. 

    What kind of economies come from reductions in cost due to adoption of technology that has high fixed costs, but lower variable costs?

    • A.

      Short-run economies of scale

    • B.

      Short-run economies of scope

    • C.

      Long-run economies of scale

    • D.

      Long-run economies of scope

    • E.

      Partially automated economies

    Correct Answer
    C. Long-run economies of scale
    Explanation
    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.

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  • 7. 

    What kind of economies come from reductions in average costs due to increases in capacity utilization?

    • A.

      Short-run economies of scale

    • B.

      Short-run economies of scope

    • C.

      Long-run economies of scale

    • D.

      Long-run economies of scope

    • E.

      Fully automated economies

    Correct Answer
    A. Short-run economies of scale
    Explanation
    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.

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  • 8. 

    What are economies of density as reffered to in the airline industry?

    • A.

      Reducing the size of an aircraft used to increase load factor

    • B.

      Economies achieved by an airline flying from spoke to spoke in a hub-and-spoke network

    • C.

      Economies of scope along a given route

    • D.

      Economies of scale along a given route

    • E.

      Reductions in average cost as traffic volume decreases

    Correct Answer
    D. Economies of scale along a given route
    Explanation
    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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  • 9. 

    What term for production describes a situation where factories and assembly lines represent a significant percentage of total costs?

    • A.

      Materials intensive

    • B.

      Labor intensive

    • C.

      Capital intensive

    • D.

      Research intensive

    • E.

      Time intensive

    Correct Answer
    C. Capital intensive
    Explanation
    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.

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  • 10. 

    According to Smith's theorem which of the following statements would be true in medical markets for thoracic surgery?

    • A.

      When demand for thoracic surgery is high, the market will not support a specialized surgeon

    • B.

      When demand for thoracic surgery is low, the market will not support a specialized surgeon

    • C.

      The average cost curves for thoracic and general surgeons are both upward sloping

    • D.

      The cost curve for a thoracic surgeon will start out lower than the cost curve for a general surgeon due to the greater investment of time

    • E.

      General surgeons incur lower training costs than do thoracic surgeons and are thus more efficient in performing thoracic surgery

    Correct Answer
    B. When demand for thoracic surgery is low, the market will not support a specialized surgeon
    Explanation
    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.

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  • 11. 

    How does carrying inventories contribute to economies of scale?

    • A.

      Increases the interest on the expenses to produce the inventory

    • B.

      Inventory depreciates in value while waiting to be used or sold

    • C.

      Increases the storage facilities necessary

    • D.

      Increases competition with rivals for customers

    • E.

      Minimizes the chance of stock-out

    Correct Answer
    E. Minimizes the chance of stock-out
    Explanation
    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.

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  • 12. 

    Which of the following does not benefit from the cube-square rule's contribution to economies of scale?

    • A.

      Automotive production

    • B.

      Oil pipelines

    • C.

      Warehousing

    • D.

      Brewing beer

    • E.

      Boiler energy production

    Correct Answer
    A. Automotive production
    Explanation
    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.

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  • 13. 

    Which of the following is not a benefit Ace captures through a cooperative of stores while maintaining independent store ownership?

    • A.

      Access to same distribution channels as large retailers

    • B.

      No central office providing direction

    • C.

      Quantity discounts

    • D.

      Local tailored product offerings

    • E.

      Location in Small neighborhoods

    Correct Answer
    B. No central office providing direction
    Explanation
    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.

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  • 14. 

    Which of the following is not a reason a supplier might seek to sell in bulk?

    • A.

      Each sale incurs a fixed cost in writing a contract

    • B.

      The purchaser is likely to switch over a small due to the gains over the large number of units ordered

    • C.

      Each sale involves setting up a different production run

    • D.

      The cost of delivery is a fixed on a per unit basis

    • E.

      The supplier fears uneven sales

    Correct Answer
    C. Each sale involves setting up a different production run
  • 15. 

    How does umbrella branding aid economies of scale and scope?

    • A.

      Increases effectiveness of advertising due to a greater presence

    • B.

      Increases effectiveness of advertising due to national advertising

    • C.

      Increases effectiveness of advertising due to offering a broad product line under one name

    • D.

      Increased cost effectiveness through purchasing as a cooperative

    • E.

      Increased cost effectiveness through bulk purchasing

    Correct Answer
    C. Increases effectiveness of advertising due to offering a broad product line under one name
    Explanation
    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.

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  • 16. 

    Which of the following practices does not contribute to the strategic fit of Southwest Airlines?

    • A.

      No in-flight catering

    • B.

      Use of multiple types of planes

    • C.

      No use of congested airports

    • D.

      Re-engineered boarding process

    • E.

      No first class section on plane

    Correct Answer
    B. Use of multiple types of planes
    Explanation
    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.

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  • 17. 

    Which of the following is a source of diseconomies of scale at a large firm?

    • A.

      Labor costs

    • B.

      Spreading specialized resources too thin

    • C.

      Conflicts of interest

    • D.

      Incentive processes

    • E.

      All of the above

    Correct Answer
    E. All of the above
    Explanation
    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.

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  • 18. 

    Why might a large firm actually be at an advantage over a smaller firm with respect to labor?

    • A.

      Large generally pay a compensating differential to attract workers

    • B.

      Worker turnover is generally lower

    • C.

      Large firms enjoy better scale economies when negotiating with health insurance companies for health benefits

    • D.

      Large firms are generally less attractive to qualified, upward mobile workers

    • E.

      Large firms often have to draw workers from a greater distance to fill their ranks

    Correct Answer
    B. Worker turnover is generally lower
    Explanation
    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.

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  • Current Version
  • Nov 16, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Jun 17, 2012
    Quiz Created by
    Orsay
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