Exam 9: Long-Run Costs and Output Decisions

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. Assume this firm is in a constant-cost industry. For this firm to ________, the firm must be producing q₃ units of output.

As long as existing firms ________ in an industry, new firms will enter the industry, causing the industry ________ curve to shift to the right.

A perfectly competitive firm will be ________ if it operates at the minimum point on its average variable cost curve.

Refer to the data provided in Table 9.1 below to answer the question(s) that follow. Table 9.1 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 9.1. In the long run, if cost conditions do not change, this firm will earn a zero economic profit if price 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. If the restaurant were to shut down, losses per week would be

If the price of an input increases, each individual firm's ________ shifts upward and the ________ shifts to the left.

A firm earns a profit if

If price lies above the minimum point on the ATC curve, in the short run the firm should ________ and in the long run it should ________.

The owner of Tie-Dyed T-shirts, a perfectly competitive firm, hires you to give him economic advice. He tells you that the market price for his shirts is $15 and that he is currently producing 200 shirts at an AVC of $10 and an ATC of $20. You tell him he should continue to operate in the short run because

If price falls below the minimum point on the AVC curve, in the short run the firm should ________, and in the long run the firm should ________.

The shape of a firm's long-run ________ depends on how costs vary with scale of operations.

In the short run, firms suffering losses should always shut down.

The rising part of a perfectly competitive firm's marginal cost curve that is equal to or above points on its average variable cost curve is the firm's

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 revenue per bushel will be

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 business is earning exactly a normal profit. Thus, the average price per greeting card must be

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 = $9, then in the long run

Refer to Scenario 9.2 below to answer the question(s) that follow. SCENARIO 9.2: Tom borrowed $40,000 from his parents to open a donut stand. He agrees to pay his parents a 5% yearly return on the money they lent him. His other yearly fixed costs equal $10,000. His variable costs equal $25,000. He sold 40,000 dozen donuts during the year at a price of $2.00 per dozen. -Refer to Scenario 9.2. Tom's total costs equal

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 = $9, then a profit-maximizing firm will produce ________ units and earn ________.

Engineers for the Off Road Skateboard Company have determined that a 10% increase in all inputs will cause output to increase by 5%. Assuming that input prices remain constant, you correctly deduce that such a change will cause ________ as output increases.

The smallest size at which long-run average cost is at its lowest level is called