Exam 9: Long-Run Costs and Output Decisions

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, its losses will equal its ________ costs of ________.

Refer to the data provided in Table 9.3 below to answer the following question(s). Table 9.3 -Refer to Table 9.3. If the market price is $30, then this firm will maximize profits by producing ________ units of output.

Refer to the data provided in Table 9.3 below to answer the following question(s). Table 9.3 -Refer to Table 9.3. If the market price is $84, then in the long run the firm will

A firm that experiences only constant returns to scale will have a U-shaped long-run average cost curve.

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. In the $6-$7 price range, the firm will

Assume a perfectly competitive industry is in long-run equilibrium at a price of $30. If this industry is an increasing-cost industry and the demand for the product increases, long-run equilibrium will be reestablished at a price

A perfectly competitive firm will be ________ if it operates at the minimum point on its average variable cost curve.

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 decides to stay open, it will make weekly operating profits of

Assume the tennis ball industry, a perfectly competitive industry, is in long-run equilibrium with a market price of $5. If the demand for tennis balls increases and the industry experiences decreasing returns to scale, long-run equilibrium will be reestablished at a price

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's shutdown point is at a price of

Which of the following is the correct way to calculate total cost?

Related to the Economics in Practice on page 193. The search engine business, which includes companies like Google and Bing, is subject to economies of scale. This means that as the use of a search engine such as Google ________, the long-run cost to provide additional searches on this engine will likely ________.

The owner of Tie-Dyed T-shirts, a perfectly competitive firm, has hired you to give him some economic advice. He has told you that the market price for his shirts is $20 and that he is currently producing 200 shirts at an AVC of $15 and an ATC of $25. What would you recommend to him?

Profits in the short run attract resources to industries in the long run, allowing them to expand.

Refer to the information provided in Figure 9.3 below to answer the question(s) that follow. Figure 9.3 -Refer to Figure 9.3. This firm's ________ point corresponds to point B.

The Razor-Thin Disposable Razor Company is a perfectly competitive firm producing where MR = MC. The current market price of a disposable razor is $3.00. The firm sells 1,800 disposable razors. Its AVC is $4.00 and its AFC is $1.50. What should Razor-Thin do?

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. Suppose demand for wheat is initially D₂. If consumer incomes increase, then demand for wheat will shift to ________. This will ________ the equilibrium price of wheat, and individual profit-maximizing firms will produce ________ bushels of wheat.

The smallest size at which long-run average cost is at its lowest level is called

When ________ scale of production leads to ________ average costs, an industry exhibits decreasing returns to scale.

The Taste Freeze Ice Cream Company is a perfectly competitive firm producing where MR = MC. The current market price of an ice cream sandwich is $5.00. Taste Freeze sells 200 ice cream sandwiches. Its AVC is $4.00 and its AFC is $3.00. What should Taste Freeze do?