Exam 9: Long-Run Costs and Output Decisions

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 is maximizing profits, his total revenue will be

Refer to Scenario 9.5 below to answer the question(s) that follow. SCENARIO 9.5: 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 percent 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 $3 on average per meal. -Refer to Scenario 9.5. In the short run, if the restaurant shuts down, its losses will equal its ________ costs of ________.

If revenues exceed ________, profit is ________.

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. At a market price of $28, if the firm produces where MR = MC, then it would produce ________ units of output and earn an economic profit of ________.

A firm will choose to operate rather than shut down as long as

If ________, a firm would either operate or shut down in the short run and contract in the long run.

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 will earn ________ economic profit if the price is $10.

Which of the following refers to a short run phenomenon?

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 shuts down, it will ________ variable costs and ________ revenue.

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 will continue to produce at any price above ________, but will not produce below that price.

The long-run industry supply curve ________ in an increasing-cost industry.

When an increase in the scale of production leads to higher average costs, the industry exhibits

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

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. In the long run, if cost conditions do not change, this firm will earn a zero economic profit if price is

The Reliable Auto Repair Shop has total revenue of $5,000. It has total fixed costs of $700 and total variable costs of $2,500. The Reliable Auto Repair Shop's profit is

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 is maximizing profits, his profit will be

The horizontal sum of marginal cost curves (above AVC) of all the firms in an industry is the short-run industry supply curve.

If the price of an input decreases, each individual firm's ________ shifts downward and the ________ shifts to the right.

Refer to the data provided in Table 9.4 below to answer the question(s) that follow. Table 9.4 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 67.42 -Refer to Table 9.4. The market price is $84 and this firm is producing four units of output. Which of the following would you recommend to this firm?

The Taste Freeze Ice Cream Company is a perfectly competitive firm producing where MR = MC. The current market price of an ice cream sandwich is $5.00. Taste Freeze sells 200 ice cream sandwiches. Its AVC is $4.00 and its AFC is $3.00. What should Taste Freeze do?