Exam 9: Long-Run Costs and Output Decisions

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 demand for wheat is D₃, then a profit-maximizing firm will produce ________ units and earn ________.

A firm that has increasing returns to scale in the long run does not experience diminishing marginal returns in the short run.

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. At a market price of $28, if the firm produces where MR = MC, then it would produce ________ units of output and earn an economic profit of ________.

Refer to Scenario 9.5 below to answer the question(s) that follow. SCENARIO 9.5: 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 percent 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 $3 on average per meal. -Refer to Scenario 9.5. Weekly total revenue is

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 the price of rice (a substitute for wheat) rises, then demand for wheat will shift to ________. This will ________ the equilibrium price of wheat and individual profit-maximizing firms will produce ________ bushels of wheat.

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 $20, then this firm will maximize profits by producing ________ units of output.

If price falls below the minimum point on the AVC curve, in the short run the firm should ________, and in the long run the firm should ________.

If TR equals TC, the a firm

Economies of scale are also referred to as increasing returns to scale.

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 will continue to operate in the short run, but incur an economic loss if price is

Firms that are earning zero economic profits are

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. If this farmer is maximizing profit, his profit (or loss) is

Profit is

A(n) ________ in a firm's scale of production leads to ________ average total cost when there are economies of scale.

Refer to the information provided in Figure 9.6 below to answer the question(s) that follow. Figure 9.6 -Refer to Figure 9.6. Assume this firm is in a constant-cost industry. For this firm to ________, the firm must be producing q₃ units of output.

Refer to Scenario 9.6 below to answer the question(s) that follow. SCENARIO 9.6: Celeste borrowed $40,000 from her brother to open a car wash. She pays her brother a 5% yearly return on the money he lent her. Her other yearly fixed costs equal $18,000. Her variable costs equal $40,000. In her first year, Amy sold 40,000 car washes at a price of $2.50 per car wash. -Refer to Scenario 9.6. Celeste's total revenue is

Refer to the information provided in Figure 9.7 below to answer the question(s) that follow. Figure 9.7 -Refer to Figure 9.7. This increasing cost industry's long-run supply curve would be found by drawing a line from

Related to the Economics in Practice on page 199: Licenses to sell hot dogs in New York City's Central Park are considerably higher than the licenses to sell hot dogs in the rest of the city. Which of the following statements regarding the above information is true?

If, at the output where marginal revenue equals marginal cost, price is below average variable cost, a firm will shut down in the short run.

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 market price is less than its average variable cost. You should advise the firm to