Exam 9: Long-Run Costs and Output Decisions

Assume the tennis ball industry, a perfectly competitive, decreasing‐cost industry, is in long-run equilibrium with a market price of $5. If the demand for tennis balls DECREASES, long-run equilibrium will be reestablished at a price

Refer to the information provided in Figure 9.1 below to answer the questions that follow. Figure 9.1 -Refer to Figure 9.1. If this farmer is maximizing profits, his profit will be

Refer to the data provided in Table 9.1 below to answer the questions 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 $42, then for this firm to maximize profits it should produce ________ units of output and its profits will be ________.

Refer to Scenario 9.1 below to answer the questions 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 fixed costs equal

If TR < TVC, a firm would ________ in the short run and ________ in the long run.

When price is sufficient to cover average variable costs, firms suffering short-run losses will continue to operate rather than shut down.

Industries in which firms are enjoying positive profits are likely to ________ in the long run.

Economies of scale cannot be due only to the sheer size of a firm's operation.

Refer to the information provided in Figure 9.2 below to answer the questions that follow. Figure 9.2 -Refer to Figure 9.2. This firm's short-run supply curve is the firm's

Refer to the information provided in Figure 9.7 below to answer the questions that follow. Figure 9.7 -Refer to Figure 9.7. The firm's shut down point is at a price of

Internal economies of scale occur at the ________ levels.

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

Assume the tennis ball industry, a perfectly competitive, increasing‐cost industry, is in long-run equilibrium with a market price of $5. If the demand for tennis balls DECREASES, long-run equilibrium will be reestablished at a price

In the short run,

Refer to Scenario 9.3 below to answer the questions 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. The restaurant is making ________ economic profits per week.

Refer to Scenario 9.5 below to answer the questions that follow. SCENARIO 9.5: Investors put up $52,000 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. The restaurant's weekly economic profit is

Refer to Scenario 9.5 below to answer the questions that follow. SCENARIO 9.5: Investors put up $52,000 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, it ________ variable costs and ________ revenue.

Refer to the data provided in Table 9.1 below to answer the questions 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 $17, then in the long run the firm will

Refer to the data provided in Table 9.1 below to answer the questions 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 $10, then for this firm to maximize profits it should produce ________ unit(s) of output.

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