Exam 9: Long-Run Costs and Output Decisions

A firm will ________ in the short run if variable costs exceed revenues.

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.

Pappy's Popcorn Emporium operates in a perfectly competitive industry and hires you as an economic consultant. Pappy's is currently producing at a point where market price equals its marginal cost. Its total revenue exceeds both its total variable cost and its total cost. You advise Pappy's to

Refer to the data provided in Table 9.3 below to answer the following question(s). Table 9.3 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 67.43 -Refer to Table 9.3. If the market price is $34, then in the long run the firm will

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. The normal return to the investors on a weekly basis is

A firm that is earning positive profits in the short run has an incentive to ________ its scale of operation in the long run.

Billy Bob's Fertilizer Engineers, a perfectly competitive firm, is incurring a loss, but the price is still above minimum average variable cost. Then in the short run this firm should ________, and in the long run, if there is no change in economic conditions, this firm should ________.

Refer to the data provided in Table 9.3 below to answer the following question(s). Table 9.3 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 67.43 -Refer to Table 9.3. The lowest output this firm would produce before shutting down is ________ units.

As long as economic profits are being earned in an industry, firms will ________ the industry and the supply curve will shift to the ________.

A firm stands to lose by operating instead of shutting down if ________ does not sufficiently cover ________.

Every point on a U‐shaped long-run average cost curve represents

Assume the market for beef is perfectly competitive. Beef producers are currently earning a zero economic profit. If consumers switch from chicken to beef, which of the following is most likely to occur?

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.

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 would earn a zero economic profit if price was

The owner of Tie-Dyed T-shirts, a perfectly competitive firm, has hired you to give him some economic advice. He has told you that the market price for his shirts is $20 and that he is currently producing 200 shirts at an AVC of $15 and an ATC of $25. What would you recommend to him?

The marginal cost curve of a firm above AVC is also its short-run supply curve.

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

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

At all prices below the shutdown point, optimal short-run output is zero.

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