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. In the $6-$7 price range, the firm will

The best explanation for the shape of a short run marginal cost schedule is

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. Economic profit per week is

Profits in the short run attract resources to industries in the long run, allowing them to expand.

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 ________.

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 profit is

Technology is a primary source of economies of scale for many firms.

Profit 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. If MR = $7, then a profit-maximizing firm will produce ________ units and earn a profit of ________.

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 D₁, then in the long run

If ________, a firm would shut down in the short run and exit the industry in the long run.

When an increase of a firm's scale of production leads to higher average costs per unit produced, there is an increasing return to scale.

Which of the following is the correct way to calculate total cost?

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 profit for the business is ________ when the average price per greeting card is $7.50.

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

In the long run firms will expand as long as there are more ________, and new firms will enter the industry as long as they earn ________.

Economic profit is

Related to the Economics in Practice on page 203: 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?

Assume a perfectly competitive industry is in long-run equilibrium at a price of $75. If this industry is a constant-cost industry and the demand for the product decreases, long-run equilibrium will be reestablished at a price

Entry of new firms in a decreasing-cost industry leads to an upward shift of the LRAC curve.