Question

Burgin's Broilers produced one more chicken, and as a result its long-run average total cost increased. What must be true?

	a.	Burgin's Broilers is experiencing increasing fixed costs.
	b.	Burgin's Broilers is losing money.
	c.	Burgin's Broilers is experiencing economies of scale when it increases output.
	d.	Burgin's Broilers is experiencing diseconomies of scale when it increases output.

When total utility _____ at a decreasing rate, marginal utility:

	a.	decreases; stays the same.
	b.	increases; decreases.
	c.	decreases; increases.
	d.	increases; increases.

Answer 1

when burgin's produces one more chicken, as result of this its long run average cost incresesd. then we can say that

(d) burgin's broilers is experiencing diseconomies of scale when it increses output. why?

from the defination of the diseconomies of scale, if long run average cost cost increses as firm increses its output then there will be diseconomies of scale presented.

why others are not true ?

(a) as the cost of a firm increses associated with increase in prodction then the variable part of cost changes not the fixed part.

(b) since no information regarding prices of chicken were given so we can not say firm is lossing money.

(c)if an increses in output decreses the long run average cost then there will be economies of scale are present.

Concept:

relationship between marginal utility and the total utility

*when marginal utility increases then total utilty increases at a increasing rate

*when marginal utility decreases but remain positive then total utility increases at a decreasing rate.

*when marginal utility decreases and becomes negative then total utility falls.

therefore with above relationship we cab say the most appropriate option is

when total utility increases at a decreasing rate, marginal utility decreases.

answer: (b) increases; decreases.