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. Suppose the average price per sandwich is $5.50. What is the annual profit of the deli?

Refer to the data provided in Table 9.1 below to answer the question(s) that follow. Table 9.1 -Refer to Table 9.1. The shutdown point for this firm is a price of

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 revenue per week is

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 $20, then to maximize profits this firm should produce

Assume the watermelon industry is perfectly competitive and in long-run equilibrium with a market price of $10. If the demand for watermelons increases in this decreasing-cost industry, long-run equilibrium will be reestablished at a price

Which of the following will shift the short-run industry supply curve of a perfectly competitive industry?

An industry with a ________ long-run supply curve is called a constant-cost industry.

Refer to the data provided in Table 9.4 below to answer the question(s) that follow. Table 9.4 -Refer to Table 9.4. If the market price is $34 and the firm produces 4 units of output, then its profit would be

Refer to the data provided in Table 9.1 below to answer the question(s) that follow. Table 9.1 -Refer to Table 9.1. If the market price is $42, then in the long run the firm will

The long-run industry supply curve ________ in a decreasing-cost industry.

A firm's long-run average cost curve is increasing as output increases over all levels of output. As a result

A perfectly competitive industry's supply curve is upward sloping.

Refer to the data provided in Table 9.1 below to answer the question(s) that follow. Table 9.1 -Refer to Table 9.1. If the market price is $15, this firm should produce ________ units of output to maximize profits.

Assume the tennis ball industry, a perfectly competitive, increasing‐cost industry, is in long-run equilibrium with a market price of $5. If the demand for tennis balls decreases, long-run equilibrium will be reestablished at a price

Over all levels of output, if a firm's long-run average cost curve declines as output increases, then

A firm's long-run average cost curve represents the minimum cost of producing each level of output when the scale of production can be adjusted.

Refer to the information provided in Figure 9.4 below to answer the question(s) that follow. Figure 9.4 -Refer to Figure 9.4. In the short run this firm should ________ and in the long run this firm should ________, if economic conditions do not change.

Refer to the data provided in Table 9.4 below to answer the question(s) that follow. Table 9.4 -Refer to Table 9.4. At a market price of $56, if the firm produces where MR = MC, then it would produce ________ units of output and earn an economic profit of ________.

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. What would you recommend that he do?

Input prices fall as entry occurs in an increasing-cost industry.