7. Long-run cost relationships The following graph shows the short-run average total cost curves and the long-run average cost curve for a publishing firm. The
7. Long-run cost relationships The following graph shows the short-run average total cost curves and the long-run average cost curve for a publishing firm. The five marked quantities indicate points of tangency between each short-run average total cost curve (SRATC) and the long-run average cost curve (LRAC); for example, 21 marks the point of tangency between SRATC, and LRAC. The orange point on SRATC, indicates the firm's current output level in the short run (@2). ? SRATC SRATC SRATC LRAC SRATC, SRATC, COST PER UNIT Q 5 Q 1 Q 2 Q3 QA QUANTITY OF OUTPUTIn the long run, if the m1 decides to keep output at its initial level, what will it likely do? Shift to operate on SRATC3 Shut down Shift to operate on SRATC'z Stayr on SRATCI but decrease to the point touching LRAC At which output level (or range of output levels) is this n'n operating at the ideal plant size? Assuming that it cannot change it's current cost curve. Q2 to Q4 Q4 0 to 93 Q3 Q2 1. costs and prot Bob lives in Miami and runs a business that sells guitars. In an average year, he receives $793,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $430,000; he also pays wages and utility bills totaling $301,000. He owns his showroom; if he chooses to rent it out, he will receive $15,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Bob does not operate this guitar business, he can work as a nancial advisor and receive an annual salary of $50,000 with no additional monetary costs. No other costs are incurred in running this guitar business. Identify each of Bob '5 costs in the following table as either an implicit cost or an explicit cost of selling guitars. The wholesale cost for the guitars that Bob pays the manufacturer The rental income Bob could receive if he chose to rent out his showroom The wages and utility bills that Bob pays 0 Complete the following table by determining Bob's accounting and economic prot of his guitar business. Profit (Dollars) Accounting Profit 62,000 Economic Prot 3,000 Alternatively, the economic prot he would earn as a nancial advisor would be $ Complete the following table by determining Bob's accounting and economic prot of his guitar business. Profit (Dollars) Accounting Profit 52,000 Economic Prot 3,000 Alternatively, the economic prot he would earn as a nancial adviser would be a; If Bob's goal is to maximize his economic prot, he v stay in the guitar business. True or false: Bob is earning a normal prot. False True Grade It Now Save & Continue n .- -.|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance