Exam 9: Long-Run Costs and Output Decisions

Refer to Scenario 9.4 below to answer the question(s) that follow. Scenario 9.4: Sponsors invest $100,000 in a new deli on the promise that they will earn a return of 10% per year on their investment. The deli sells 52,000 sandwiches per year. The deli's fixed costs include the return to investors and $42,000 in other fixed costs. Variable costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($2,000 per week). The deli is open 52 weeks per year. -Refer to Scenario 9.4. The annual fixed costs of the deli are ________.

Refer to the information provided in Figure 9.2 below to answer the question(s) that follow. Figure 9.2 -Refer to Figure 9.2. If MR = $9, then in the long run

In long-run equilibrium for a perfectly competitive industry, firms earn ________ economic profits and produce ________.

A firm is experiencing ________ on the upward sloping portion of a firm's long run average cost curve.

Refer to the information provided in Figure 9.1 below to answer the question(s) that follow. Figure 9.1 -Refer to Figure 9.1. This farmer would be breaking even if price was

If revenues exceed ________, profit is ________.

If revenues are greater than total variable costs of production but less than total costs, a firm

The short run individual firm's supply curve is made up of the zero-profit equilibrium levels of output as the industry expands due to entry.

For constant returns to scale, a(n) ________ in a firm's scale of production leads to ________ average total cost.

For a perfectly competitive industry, an improvement in technology will cause

Refer to the data provided in Table 9.2 below to answer the question(s) that follow. Table 9.2 -Refer to Table 9.2. If the market price is $17 and the firm produces 4 units of output, then its profit would be

The owner of Tie-Dyed T-shirts, a perfectly competitive firm, hires you to give him economic advice. He tells you that the market price for his shirts is $15 and that he is currently producing 200 shirts at an AVC of $10 and an ATC of $20. You tell him he should continue to operate in the short run because

Refer to Scenario 9.9 below to answer the question(s) that follow. SCENARIO 9.9: Sponsors invest $250,000 in a new greeting card business on the promise that they will earn a return of 10% per year on their investment. The business sells 52,000 greeting cards per year. The fixed costs for the business include the return to investors and $79,000 in other fixed costs. Variable costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($3,000 per week). The business is open 52 weeks per year. -Refer to Scenario 9.9. The annual fixed costs for the business sum to ________.

In the short run, firms earning a profit will want to ________ their profits while firms suffering losses will want to ________ their losses.

In long-run equilibrium for a perfectly competitive industry, price equals

Refer to Scenario 9.8 below to answer the question(s) that follow. SCENARIO 9.8: Investors put up $1,040,000 to construct a building and purchase all equipment for a new gourmet cupcake bakery. The investors expect to earn a minimum return of 10 per cent on their investment. The bakery is open 52 weeks per year and sells 900 cupcakes per week. The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the fixed costs is the 10% return to the investors and $2,000 in other fixed costs. Variable costs include $2,000 in weekly wages, and $600 per week in materials, electricity, etc. The bakery charges $8 on average per cupcake. -Refer to Scenario 9.8. Total revenue per week is

As long as existing firms ________ in an industry, some existing firms will exit the industry, causing the industry ________ curve to shift to the left.

Sources of external economies of scale include

Refer to the data provided in Table 9.2 below to answer the question(s) that follow. Table 9.2 -Refer to Table 9.2. The market price is $42 and this firm is producing four units of output. Which of the following would you recommend to this firm?

Refer to Scenario 9.10 below to answer the question(s) that follow. SCENARIO 9.10: Investors put up $1,040,000 to construct a building and purchase all equipment for a new cafe. The investors expect to earn a minimum return of 10 percent on their investment. The cafe is open 52 weeks per year and serves 900 meals per week. The fixed costs are spread over the 52 weeks (i.e. prorated weekly). Included in the fixed costs is the 10% return to the investors and $2,000 in other fixed costs. Variable costs include $2,000 in weekly wages, and $600 per week in materials, electricity, etc. The cafe charges $6 on average per meal. -Refer to Scenario 9.10. In the short run, if the cafe shuts down, it will ________ variable costs and ________ revenue.