Unit 3 : Reading Quiz # 7 : 5 points

1. 1. To economists the main difference between the short run and the long run is that: A) the law of diminishing returns applies in the long run, but not in the short run. B) in the long run all resources are variable, while in the short run at least one resource is fixed. C) fixed costs are more important to decision making in the long run than they are in the short run. D) in the short run all resources are fixed, while in the long run all resources are variable. E) the short run is any time within one year and the long run is any time longer than a year. Unit 3 : Reading Quiz # 7: 5 points • 2. As the firm in the diagram on the handout expands from plant size #1 to plant size #3, it experiences: • A) diminishing returns. • B) economies of scale. • C) diseconomies of scale. • D) constant returns to scale.

2. 3. The long-run average total cost curve: A) will rise if diminishing returns are encountered. B) will fall if diminishing returns are encountered. C) will rise if economies of scale are incurred. D) is based on the assumption that all resources are variable. • 4. In the above long-run average total cost curve the: • A) movement from A to B reflects diseconomies of scale. • B) movement from B to C reflects diseconomies of scale. • C) realization of economies of scale would shift the entire curve downward. • D) movement from B to C reflects the law of diminishing returns.

3. 5. The long–run ATC curve is often called the firm’s: A) Planning Curve. B) Capital expansion path. C) Total product curve. D) Production possibilities curve.