Exam 9: Long-Run Costs and Output Decisions

The Speedy Typesetting Company, a perfectly competitive firm, is currently producing where P = MC and is earning a normal profit. The firm mainly employs minimum wage workers and the government just increased the minimum wage from $7.25 to $9.55 per hour. In the short run, this firm will most likely

When a decrease in the scale of production leads to higher average costs, the industry exhibits

Refer to Scenario 9.2 below to answer the question(s) that follow. Scenario 9.1: Tom borrowed $40,000 from his parents to open a donut stand. He agrees to pay his parents a 5% yearly return on the money they lent him. His other yearly fixed costs equal $10,000. His variable costs equal $25,000. He sold 40,000 dozen donuts during the year at a price of $2.00 per dozen. -Refer to Scenario 9.2. Tom's total fixed costs equal

You are hired as an economic consultant to The Pampered Pet Shop. The Pampered Pet Shop operates in a perfectly competitive industry. This firm is currently producing at a point where market price equals its marginal cost. The Shop's total revenue exceeds its total variable cost, but is less than its total cost. You should advise the firm to

A firm suffering economic losses decides whether or not to produce in the short run on the basis of whether

An industry with a horizontal long-run supply curve is called a(n) ________ industry.

Refer to the information provided in Figure 9.5 below to answer the question that follows. Figure 9.5 -Refer to Figure 9.5. Based on the figures, supply will ________ in the long run and profits should ________.

Mondo's Microbrewery is growing rapidly. As a result of achieving larger size, the firm realizes it needs to hire quite a few additional employees and upgrade its brewing and bottling equipment, which increases its average costs. The best explanation for these events is that Mondo's Microbrewery is experiencing ________ returns to scale.

As long as existing firms ________ in an industry, new firms will enter the industry, causing the industry ________ curve to shift to the right.

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 cost per week is

Engineers for The All-Terrain Bike Company have determined that a 15% increase in all inputs will cause a 15% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause ________ as output increases.

In the long run firms will ________ as long as there are more economies of scale and new firms will enter the industry as long as they earn ________.

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 will earn ________ economic profit if the price is $10.

If a firm's economic profit is $0, then it must be true that

A firm ________ in the short-run has an incentive to expand its long-run scale of operation.

When an increase in the scale of production leads to higher average costs, the industry exhibits

Industries in which firms are enjoying positive profits are likely to ________ in the long run.

Refer to the data provided in Table 9.3 below to answer the following question(s). Table 9.3 -Refer to Table 9.3. In the long run, if cost conditions do not change, this firm will earn a zero economic profit if price is

Refer to Scenario 9.3 below to answer the question(s) that follow. Scenario 9.3: Investors put up $520,000 to construct a building and purchase all equipment for a new restaurant. The investors expect to earn a minimum return of 10 per cent on their investment. The restaurant 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 $1,000 per week in other fixed costs. Variable costs include $1,000 in weekly wages and $600 per week for materials, electricity, etc. The restaurant charges $5 on average per meal. -Refer to Scenario 9.3. Total fixed costs per week are

As the accounting industry expands, the demand for certified public accountants (CPAs) also increases, which causes the salaries of CPAs to increase. This is an example of