Assignment #9 (Chapter 9)

shut down, shut down; operate, expands it plant; shut down, shut down; operate, expand its plant; operate, neither shut down nor expand; operate, shut down

In the short​ run, firm A should ______. In the long​ run, it should _______ . In the short​ run, firm B should ____ In the long​ run, it should______ . In the short​ run, firm C should _____. In the long​ run, it should ______ . In the short​ run, firm D should _____. In the long​ run, it should______ . In the short​ run, firm E should_______ . In the long​ run, it should______. In the short​ run, firm F should_______ . In the long​ run, it should______

300; 1500;225

The graph to the right shows cost curves of a representative firm in a perfectly competitive industry. Use this graph to answer the​ following: The firm will produce ____ units of output. Total revenue ​(TR​) is ​$____ This firm is currently earning a profit of ​$____

$6

The​ firm's shut down point is at a price of

True

If total revenue is less than total variable cost in a perfectly competitive industry in the short​ run, firms will tend to exit that industry in the long run.

​average; long​ run; marginal; short run

Explain why it is possible that a firm with a production function that exhibits increasing returns to scale can run into diminishing returns at the same time. Increasing returns is a reduction in​ _______ costs in the​ ______, while diminishing returns is an increase in​ _______ costs in the​ _____.

earning zero economic profits.

Firms that are​ "breaking even" are

firms act to minimize losses or maximize profits.

In the short​ run,

total revenue is less than total variable cost.market price falls below the minimum point on the average variable cost ​(AVC​) curve.

In the short​ run, a firm in a perfectly competitive industry will minimize its losses by shutting down​ if:

incorrect; long run, downward, lower; correct; incorrect; upward, higher

Increasing returns to scale refers to a situation where an increase in a​ firm's scale of production leads to higher costs per unit produced. The above statement is ______. Increasing returns to scale refers to a situation where a​ firm's ______ average cost curve slopes . ​Therefore, an increase in the​ firm's scale of production leads to ____average costs. Constant returns to scale refers to a situation where an increase in a​ firm's scale of production has no effect on costs per unit produced. This statement is _____ Decreasing returns to scale refers to a situation where an increase in a​ firm's scale of production leads to lower costs per unit produced. This statement is _____ Decreasing returns to scale refers to a situation where a​ firm's long-run average cost curve slopes ______.Therefore, an increase in the​ firm's scale of production leads to _____ average costs.

economies of scale

Observe the​ firm's long-run average cost curve shown to the right. Between points A and B​, there​ are:

12

Refer to the information provided in the figure at right to answer the question that follows. For this farmer to maximize profits he should produce​ _____ bushels of wheat.

$108.

Refer to the information provided in the figure at right to answer the question that follows. If this farmer is maximizing his​ profits, his TVC is

$132

Refer to the information provided in the figure at right to answer the question that follows. If this farmer is maximizing​ profits, his total costs will be

$180

Refer to the information provided in the figure at right to answer the question that follows. If this farmer is maximizing​ profits, his total revenue will be

$10

Refer to the information provided in the figure at right to answer the question that follows. This farmer would earn a zero economic profit if price was

$24

Refer to the information provided in the figure at right to answer the question that follows. This​ farmer's fixed costs are

$43,000

Refer to the scenario below to answer the following question. 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. ​Tom's profit is

$37,000

Refer to the scenario below to answer the following question. 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. ​Tom's total costs equal

a​ firm's long-run average cost curve shifts down when industry output expands. decreases

Suppose a competitive industry experiences external economies. If​ so, then: ​Furthermore, with external economies​, the​ long-run industry supply curve _________ with output.

D3​; ​increase; 15

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.

economies of scale

When an increase in a​ firm's scale of production leads to lower average​ costs, we say that there​ are:

​down, decreasing-cost; true

When an industry enjoys external​ economies, its​ long-run supply curve slopes​ ________ and the industry is called​ a(n) ________ industry. ​Constant-cost industries are industries in which there are no external economies or diseconomies of scale

True

A firm in a perfectly competitive industry in​ long-run equilibrium will earn normal returns and zero economic profit.

earning zero economic profit. earning a normal rate of return. in an industry that is not attracting new firms

A firm that is breaking even​ is:

$750;True

A perfectly competitive firm sells pineapples for​ $4 each. MR​ = MC at a quantity of 600 units. Average total cost at the​ profit-maximizing quantity is​ $2.75. This firm is earning a profit of A firm that is earning a positive profit in the short run and expects to continue doing so has an incentive to expand its scale of operation in the long run.

​increase; earn a profit ​enter; zero

A perfectly competitive market is in​ long-run equilibrium. If demand in this market suddenly​ increases, price will​ ________ and firms will​ ________. A perfectly competitive market is in​ long-run equilibrium and demand in this market suddenly increases. In this​ situation, firms will eventually​ ________ the industry and will ultimately earn​ ________ economic profits.

Disagree. It has an incentive to expand its scale of operation only if it expects to continue to earn profits. Disagree: It should continue to operate as long as total revenue is greater than variable costs.

For each of the​ following, decide whether you agree or disagree and explain your​ answer: A firm earning positive profits in the short run always has an incentive to increase its scale of operation in the long run. A firm suffering losses in the short run will continue to operate as long as total revenue at least covers fixed cost.

TR equals TC

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

5; $8;$79; will operate; expand​, because​ short-run profits are positive.

If the price of output is ​$17​, this firm will produce ___ units of output.​ The total revenue is ____ The total cost is ___ The firm ___________ in the short run In the long​ run, the firm should​ ____________.

$48

If this farmer is maximizing​ profits, his profit will be

​P*​ = SRMC​ = SRAC​ = LRAC.

In a perfectly competitive market in the long​ run, profits are driven to zero due to which of the following​ relationships?

787.50; 1012.50; 337.50 ; 675; -225.00; loss, continue producing

The representative​ firm's total revenue ​(TR​) for selling the​ profit-maximizing level of output is ​$____ The representative​ firm's total cost of producing the​ profit-maximizing level of output is ​$______ Total fixed cost is ​$_______ Total variable cost is ​$_____ Economic profit is ​$______ This firm is operating at a _____ and should _______ .

the portion of the marginal cost curve that lies above minimum average variable cost.

The​ short-run supply curve of a perfectly competitive firm​ is:

$7

This​ farmer's shutdown point is at a price of

$12,000

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. ​Tom's total fixed costs equal

$80,000

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. ​Tom's total revenue was

increasing returns on scale

Two college students share an apartment and split the cost of​ heating, electricity, and rent. They decide to include one more roommate and divide​ heat, electricity, and rent costs three ways instead of two ways. If adding the third roommate reduces the amount of money they each pay for utilities and rent each​ month, this can be described​ as:

in​ long-run competitive equilibrium. making zero profits.

When P​ = SRMC​ = SRAC​ = LRAC​, an industry is considered to​ be: