Question 1
In the long run, decreasing returns to scale are likely to be caused by
◦ increasing specialization of labour.
◦ decreasing costs.
◦ a decrease in factor prices.
◦ diseconomies of scale associated with management problems.
◦ diminishing returns to the variable factor.
Question 2
Which of the following statements concerning long-run and short-run cost curves is correct?
◦ A short-run average cost curve can fall below the long-run average cost curve.
◦ Both the long-run and short-run average cost curves show the lowest cost of producing any output when all factors are variable.
◦ The short-run average cost curve for the optimal plant size is tangent to the long-run average cost curve at all levels of output of the fixed factor.
◦ The minimum point of the long-run average cost curve will correspond to the minimum point on a single short-run average cost curve.
◦ The long-run average cost curve envelops a whole family of short-run marginal cost curves.
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