Exam 9: Long-Run Costs and Output Decisions

For economies of scale, a(n) ________ in a firm's scale of production leads to ________ average total cost.

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

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

Suppose Heidi's Ice Cream experiences economies of scale up to a certain point and diseconomies of scale beyond that point. Its long-run average cost curve is most likely to be

Engineers for The Giffen Record Company have determined that a 35% increase in all compact disc inputs will cause a 45% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause ________ as output increases.

If a perfectly competitive firm operates in the short run and expands in the long run, then the firm's short run condition is

Related to the Economics in Practice on page 205: The price of hot dogs sold from a cart in New York's Central Park is much higher than the standard price elsewhere in New York. Which of the following, if true, would provide the best explanation for this difference?

Refer to the information provided in Figure 9.6 below to answer the questions that follow. Figure 9.6 -Refer to Figure 9.6. This increasing cost industry's long-run supply curve would be found by drawing a line from

The shape of a firm's ________ run average cost curve depends on how costs vary with ________.

When a decrease in the scale of production leads to higher average costs, the industry exhibits

Refer to the data provided in Table 9.2 below to answer the questions 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 ________.

In efficient markets, ________ flows toward ________ opportunities.

Entry of new firms in an increasing-cost industry leads to an upward shift of the LRAC curve.

Profit is

A profit-maximizing strategy becomes a loss minimization strategy when a firm in a perfectly competitive industry is producing where

Assume the market for beef is perfectly competitive. Beef producers are currently earning a zero economic profit. If consumers switch to beef from chicken, which of the following is most likely to occur?

Refer to Scenario 9.4 below to answer the questions 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?

Input prices fall as entry occurs in an increasing-cost industry.

In long-run equilibrium for a perfectly competitive industry, firms earn ________ economic profits and produce ________.

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 weekly economic profit is