Exam 9: Long-Run Costs and Output Decisions

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. In the short run, if the restaurant decides to stay open, it will make operating profits of

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 ________ would be found by drawing a line from points B to E.

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

A firm stands to gain by operating instead of shutting down as long as ________ sufficiently covers ________.

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. Economies of scale exist up to ________ units of output for this firm.

Refer to the data provided in Table 9.2 below to answer the question(s) that follow. Table 9.2 q TFC TVC TC MC AVC ATC 0 \ 50 \ 0 \ 50 -- -- -- 1 50 20 70 20 20 70 2 50 30 80 10 15 40 3 50 45 95 15 15 31.67 4 50 62 112 17 15.50 28 5 50 90 140 28 18 28 6 50 132 182 42 22 30.33 7 50 186 236 54 26.57 33.71 -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?

As long as price is sufficient to cover ________, the firm is better off by operating rather than by shutting down.

Related to the Economics in Practice on page 197. Which of the following represents a situation in which a school is experiencing diseconomies of scale?

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

If a firm's total revenue is less than its total variable cost, it should shut down.

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. In the short run, if the restaurant shuts down, it ________ variable costs and ________ revenue.

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. The profit-maximizing price of wheat is ________ per bushel.

Refer to the data provided in Table 9.4 below to answer the question(s) that follow. Table 9.4 q TFC TVC TC MC AVC ATC 0 \ 100 \ 0 \ 100 -- -- -- 1 100 40 140 40 40 140 2 100 60 160 20 30 80 3 100 90 190 30 30 63.33 4 100 124 224 34 31 56 5 100 180 280 56 36 56 6 100 264 364 84 44 60.67 7 100 372 472 108 67.42 -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 ________.

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. The economic profit is

Assume the market for orange juice is perfectly competitive. Orange juice producers currently earn a zero economic profit. Orange juice producers will likely begin to earn economic profits in the short run, and some producers will enter the industry until all firms in the industry earn a zero economic profit, if consumers

Refer to the data provided in Table 9.4 below to answer the question(s) that follow. Table 9.4 q TFC TVC TC MC AVC ATC 0 \ 100 \ 0 \ 100 -- -- -- 1 100 40 140 40 40 140 2 100 60 160 20 30 80 3 100 90 190 30 30 63.33 4 100 124 224 34 31 56 5 100 180 280 56 36 56 6 100 264 364 84 44 60.67 7 100 372 472 108 67.42 -Refer to Table 9.4. If the market price is $56 and the firm produces 5 units of output, then its profit would be

In the short run average costs eventually increase because of ________, and in the long run average costs eventually increase because of ________.

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. If the bakery were to shut down, losses per week would be

In efficient markets, ________ flows toward ________ opportunities.

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