Exam 9: Long-Run Costs and Output Decisions

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

A firm stands to gain by operating instead of shutting down as long as ________ sufficiently covers ________.

If revenues exceed ________, profit is ________.

At all prices below the shutdown point, optimal short-run output is zero.

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

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 profit is

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. Economic profit per week is

In the short run average costs eventually increase because of ________, and in the long run average costs eventually increase because of ________.

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. Total fixed costs per week are

As long as price is sufficient to cover ________, the firm is better off by operating rather than by shutting down.

As new firms enter a decreasing-cost industry,

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

Refer to Scenario 9.2 below to answer the questions 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 revenue was

If revenues exceed ________, economic profit is ________.

Refer to the information provided in Figure 9.5 below to answer the questions that follow. Figure 9.5 -Refer to Figure 9.5. For this firm, diseconomies of scale set in after ________ units of output.

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 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. If the market price is $17 and the firm produces 4 units of output, then its profit would be

Firms that are "breaking even" are

The Speedy Typesetting Company, a perfectly competitive firm, is currently producing where P = MC and is earning a normal profit. The firm mainly employs minimum wage workers and the government just increased the minimum wage from $5.85 to $6.55 per hour. In the short run, this firm will most likely

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.