Exam 9: Long-Run Costs and Output Decisions

If a perfectly competitive firm operates in the short run but exits the industry in the long run, then the firm's short run condition is

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

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.

A perfectly competitive firm is breaking even. In the short run it should ________. In the long run it should ________.

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

Refer to Scenario 9.9 below to answer the question(s) that follow. SCENARIO 9.9: Sponsors invest $250,000 in a new greeting card business on the promise that they will earn a return of 10% per year on their investment. The business sells 52,000 greeting cards per year. The fixed costs for the business include the return to investors and $79,000 in other fixed costs. Variable costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($3,000 per week). The business is open 52 weeks per year. -Refer to Scenario 9.9. The annual fixed costs for the business sum to

An industry is in ________ if firms have an incentive to enter or exit in the ________ run.

Assume the tennis ball industry, a perfectly competitive, decreasing‐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

In the short run average costs eventually ________ because of diminishing returns, and in the long run average costs eventually ________ because of diseconomies of scale.

The long-run industry supply curve is made up of the zero-profit equilibrium levels of output as the industry expands due to entry of new firms.

For constant returns to scale, a(n) ________ in a firm's scale of production leads to ________ average total cost.

Diseconomies of scale cannot be due only to the sheer size of a firmʹs operation.

Refer to Scenario 9.7 below to answer the question(s) that follow. SCENARIO 9.7: Julio borrowed $80,000 from his great aunt to open a coffee stand at a local flea market. He agrees to pay his great aunt a 5% yearly return on the money she lent him. His other yearly fixed costs equal $16,000. His variable costs equal $60,000. He sold 50,000 cups of coffee during the year at a price of $3.00 per cup. -Refer to Scenario 9.7. Julio's profit is

For a perfectly competitive industry, an improvement in technology will cause

If, at the output where marginal revenue equals marginal cost, price is between average total cost and average variable cost, a firm will continue to produce in the short run.

In long-run equilibrium for a perfectly competitive industry, firms earn ________ economic profits and produce ________.

Firms that are earning zero economic profits are

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.

In long-run equilibrium for a perfectly competitive industry, price equals

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 costs equal