1. Economies of scale.

83. A movement from A to C in Figure 7.2 may represent learning.

84. The presence of a learning curve may induce a decision maker in a startup firm to choose high levels of output to shift the average cost curve down over time.

85. Consider the following statements when answering this question.

I. "Investment in new technology generates learning by doing."

II. Economies of scale cannot shift the long-run average cost curve down, whereas learning by doing can. I is false, and II is true.

86. Consider the following statements when answering this question.

I. "As Boeing's production fell 10% to 100 planes last year, learning by doing cannot account for this year's changes in long-run average costs."

II. Failure to take into account the effects of learning by doing will lead to overestimates of the cost-output elasticity. I is false, and II is true.

87. A group of friends recently started manufacturing specialty T-shirts. The business has grown rapidly, with monthly production up from 50 to 250 in the first 6 months. During this same period, average production cost has been cut in half. The firm’s long-run average cost curve over this range of output may be any of the above.

88. Use the following two statements to answer this question:

I. A growing firm's average cost of production will decline over time if output continually expands and economies of scale are present.

II. A firm's average cost of production can decline over time if learning occurs as cumulative output increases.

1. Both I and II are true.

89. A variable cost function of the form: VC = 23 + Q + 7Q² implies a marginal cost curve that is

1. Linear.

90. A cubic cost function implies: all of the above.

91. A variable cost function of the form: VC = 52 + 2Q + 3Q² implies a marginal cost curve that is upward sloping.

92. A cubic cost function implies: a U-shaped average cost curve.

93. Which of the following is true of cost curves? The MC curve goes through the minimum of both the AVC curve and the ATC curve.

94. A Cobb-Douglas production function: can exhibit constant, increasing, or decreasing returns to scale.

Scenario 2:

The production function for earthquake detectors (Q) is given as follows:

Q = 4K^1/2L^1/2

where K is the amount of capital employed and L is the amount of labor employed. The price of capital, P_K, is $18 and the price of labor, P_L, is $2.

95. Refer to Scenario 2. This production function is an example of which of the following types of production functions?

1. Cobb-Douglas

96. Refer to Scenario 2. Suppose that you receive an order for 60 earthquake detectors. How much labor will you use to minimize the cost of 60 earthquake detectors? 45

97. Refer to Scenario 2. What is the marginal cost of the 60th earthquake detector? 3

Scenario 3:

Use the production function: Q = 4L^1/2K^1/2.

98. The production function in Scenario 3 exhibits: constant returns to scale.

99. The production function in Scenario 3 exhibits: (a) and (b), but not (c).

100. Refer to Scenario 3. Suppose that the price of labor is $5 and the price of capital is $20. Your firm desires to produce 200 units of output. How much labor will be hired to minimize the costs of producing 200 units of output?100

101. Refer to Scenario 3. What is the total cost of producing 200 units of output? 1000

102. Refer to Scenario 3. When Q = 200, what is the marginal cost? 5

103. Refer to Scenario 3. Suppose that your firm decides to double its output to 400. To achieve this level of output the firm will have to: