Exam 9: Long-Run Costs and Output Decisions

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. If the market price is $15, this firm should produce ________ units of output to maximize profits.

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

Economic profit is

Refer to the information provided in Figure 9.3 below to answer the question(s) that follow. Figure 9.3 -Refer to Figure 9.3. This firm will ________ if price is $13.

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

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

Firms are making profits in a decreasing-cost industry. Which of the following statements describes what will happen in the long run?

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 revenue per week 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. Suppose demand for wheat is initially D₂. If consumer incomes increase, then demand for wheat will shift to ________. This will ________ the equilibrium price of wheat, and individual profit-maximizing firms will produce ________ bushels of wheat.

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 = $5, then a profit-maximizing firm will produce ________ units and earn ________.

Refer to Scenario 9.1 below to answer the question(s) that follow. SCENARIO 9.1: Amy borrowed $20,000 from her parents to open a bagel shop. She pays her parents a 5% yearly return on the money they lent her. Her other yearly fixed costs equal $9,000. Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of $1.50 per dozen. -Refer to Scenario 9.1. Amy's total costs equal

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. For this farmer to maximize profits he should produce ________ bushels of wheat.

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

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. The lowest output this firm would produce before shutting down is ________ unit(s).

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 cost per week is

An increase in a firm's scale of production leads to no change in average total cost as long as there are

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 his profits, his TVC is

Tony's Taco Casa has total revenue of $12,500. It has total fixed costs of $2,400 and total variable costs of $4,600. Tony's Taco Casa's profit is

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 fixed costs equal

Firms in perfectly competitive industries that are earning short-run profits will likely break even in the long run.