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Exam 15: Entry, Exit, and Long-Run Profitability

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Question 31

Multiple Choice

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Nikos' lawn-mowing service is a profit-maximizing, competitive firm. If Nikos mows ten lawns per day at a price of $27 per lawn and has a total cost of $280, of which $30 is a fixed cost, what should Nikos do in the short run?

A) Shut down, since he is not covering his fixed costs
B) Continue operating, since he is covering part of his fixed costs and all his variable costs
C) Raise the price, so that he can cover his fixed costs
D) Lower his fixed costs to become more competitive

E) B) and C)
F) None of the above

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Question 32

Multiple Choice

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In a long-run equilibrium, economic profits are:

A) positive.
B) zero.
C) negative.
D) indeterminate.

E) B) and C)
F) None of the above

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Question 33

Multiple Choice

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Juan earns a yearly salary of $120,000 in his job and $1,000 per year in interest on his savings. After he quits his job to start a company, he uses all his savings to purchase manufacturing equipment for his company. Given the above information and the data summarizing his first year in business in the table, how much accounting profit or loss does Juan earn? $Table\\\begin{array}{|l|l|}\hline \text { Revenue } & \begin{array}{l}\text { Bills paid for } \\\text { inputs }\end{array} \\\hline \$ 300,000 & \$ 175,000 \\\hline\end{array}$

Which of the following government policies would create a direct barrier to entry for new sellers in a market?

How long does it take for a company to be in the long run?

How do a company's accounting profit and economic profit compare in size?

If your company has losses, then its:

As output rises, average fixed costs:

Average cost equals:

As output increases, fixed costs:

The formula for calculating accounting profit is total revenue minus _____ costs.

The two main types of implicit opportunity costs are:

Why do average variable costs eventually rise if a company's output increases enough?

If firms are making economic losses, then in the long run:

Maia is thinking of opening a restaurant. She forecasts revenues of $200,000 per year and explicit financial costs of $140,000 per year. She can pursue this opportunity only if she quits her current job as a hair stylist, where she earns $45,000 per year. She would also need to invest $110,000 of her savings to set up the restaurant-funds on which she would otherwise be earning a 6% return. Based on this information, what are Maia's implicit opportunity costs?

Average cost is:

Alana operates a small hair salon in Dallas. If some salons leave the industry, Alana's _____ curve will shift to the _____.

Which of the following is FALSE?

Junko earns a yearly salary of $130,000 in her job and $1,000 per year in interest on her savings. After she quits her job to start a company, she uses all her savings to purchase manufacturing equipment for her company. Given the above information and the data summarizing her first year in business in the table, how much accounting profit or loss does Junko earn? ${ \text { Table } } \\\begin{array} { | l | l | } \hline \text { Total revenue } & \text { Bills paid } \\\hline \$ 350,000 & \$ 200,000 \\\hline\end{array}$

When a product is characterized by network effects, then the product _____ when more customers use the product.