A Firm Decreases Its Scale of Operation and Discovers That

question 57

Multiple Choice

A firm decreases its scale of operation and discovers that its long-run average costs decrease. Which of the following does this indicate?

• A) The firm's scale initially was too small to experience economies of scale.
• B) Its long-run marginal cost was smaller with the larger plant than with the smaller plant.
• C) Labour's marginal product has increased.
• D) The firm's scale initially was so large that it experienced diseconomies of scale.
• E) Diseconomies of scale were absent in the larger plant.

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Definitions:

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial condition.

Future Cash Flows

Estimates of the amounts of cash that a company expects to receive or pay out in the future, important for budgeting, forecasting, and valuation.

Interest-Bearing Note

A debt instrument that pays interest to the holder at a fixed or variable interest rate until the principal amount is repaid.

Adjusting Entry

A journal entry made at the end of an accounting period to allocate income and expenditures to the correct period.