Exam 9: Long-Run Costs and Output Decisions

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. Total fixed costs per week are

Marginal revenue equals marginal cost at an output of 10 units. At this output, marginal revenue equals $25, average variable cost equals $30, and average total cost equals $40. In the short run, a profit-maximizing firm will earn a profit of

The short-run supply curve of a competitive firm is the portion of

A firm ________ in the short-run has an incentive to expand its long-run scale of operation.

If a firm's economic profit is $0, then it must be true that

If a firm earns short-run losses, it exits in the long run.

Related to the Economics in Practice on page 198: If the long-run average cost curve in an industry has a long, flat section, which of the following must be true?

If TR equals TC, the a firm

Refer to the information provided in Figure 9.4 below to answer the question(s) that follow. Figure 9.4 -Refer to Figure 9.4. In the short run, if economic conditions do not change, this firm should produce ________ units of output and will earn a total revenue ________.

As the accounting industry expands, the demand for certified public accountants (CPAs) also increases, which causes the salaries of CPAs to increase. This is an example of

Refer to Scenario 9.4 below to answer the question(s) that follow. SCENARIO 9.4: Sponsors invest $100,000 in a new deli on the promise that they will earn a return of 10% per year on their investment. The deli sells 52,000 sandwiches per year. The deli's fixed costs include the return to investors and $42,000 in other fixed costs. Variable costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($2,000 per week). The deli is open 52 weeks per year. -Refer to Scenario 9.4. Suppose the average price per sandwich is $5.50. What is the annual profit of the deli?

Refer to Scenario 9.4 below to answer the question(s) that follow. SCENARIO 9.4: Sponsors invest $100,000 in a new deli on the promise that they will earn a return of 10% per year on their investment. The deli sells 52,000 sandwiches per year. The deli's fixed costs include the return to investors and $42,000 in other fixed costs. Variable costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($2,000 per week). The deli is open 52 weeks per year. -Refer to Scenario 9.4. The annual fixed costs of the deli are

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. You tell him he should continue to operate in the short run because

Refer to the information provided in Figure 9.4 below to answer the question(s) that follow. Figure 9.4 -Refer to Figure 9.4. In the short run this firm should ________ and in the long run this firm should ________, if economic conditions do not change.

New investors are not attracted to an industry and current ones are not exiting the industry if firms in the industry are

Marginal revenue equals marginal cost at an output of 15 units. At this output, marginal revenue equals $30, average variable cost equals $20, and average total cost equals $25. In the short run, a profit-maximizing firm will earn a profit of

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 maximizes profits, his average fixed costs will be

Refer to the information provided in Figure 9.5 below to answer the question that follows. Figure 9.5 -Refer to Figure 9.5. From the diagram, existing firms in this industry make ________ economic profits, and as long as this continues, ________.

Across different output levels, a firm can experience both economies and diseconomies of scale.

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. If the market price is $17 and the firm produces 4 units of output, then its profit would be