A firm scaled down its operation by reducing all inputs by 50% and experienced a less-than-50% decrease in output. If all input prices remain unchanged, the firm's long-run average cost exhibits:
A. economies of scale at the current output level.
B. diseconomies of scale at the current output level.
C. a constant long-run average cost at the current output level.
D. diminishing marginal returns at the current output level.
Answer: B
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a. True b. False
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Answer the following statement true (T) or false (F)
Suppose there are 1,825 taxi medallions in Boston, each valued at about $250,000. Assume the price elasticity of demand for taxi rides is 1; the current price for a taxi ride is $4.75 per mile, and the cost of the ride is $3.00 per mile. How much would a person be willing to pay for a new medallion if the city increased the number of medallions to 2,000? (Hint: The price of the medallions is equal to the total profit from the average total number of miles each medallion will accumulate.)
A. $250,000 B. $160,000 C. $337,000 D. $185,000