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

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Question 41

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Super Snackin Services is in long-run equilibrium, and then there is a decrease in the market demand for snacks. One expects that:

A) prices will fall in the short run, and new firms will enter the market in the long run.
B) prices will rise in the short run, and new firms will enter the market in the long run.
C) prices will fall in the short run, and firms will leave the market in the long run.
D) prices will rise in the short run, and firms will leave the market in the long run.

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Question 42

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What is the difference between explicit financial costs and implicit opportunity costs?

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Question 43

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Luana gives up a salary of $80,000 per year to start her company. She invests $50,000 of her savings in her company, savings that had been earning her $4,000 per year in interest. During Luana's first year in business, total revenue is $300,000, and her explicit financial costs are $225,000. What is Luana's accounting profit from her first year in business?

If a product's usefulness increases with the number of users:

Hua Xing forgoes a job with an annual salary of $80,000 to start her own interior design company. She invests $30,000 of her own savings in the company, which means forgoing the $3,000 per year that she has been earning on those savings. During her first year in business, Hua Xing's firm collects revenue of $250,000 and pays out $160,000 in expenses. What is Hua Xing's economic profit or loss situation at the end of her first year in business? Provide the specific amount of economic profit or loss, and explain how you arrived at that conclusion.

Alana's Confectionary is located in the East Side Village. When the market price of iced brownies is $5, the profit-maximizing output level is 150 brownies. Her average cost is $4, and her variable cost per unit is $3. Alana's marginal cost is _____, and her short-run profits are _____.

Explain the difference between accounting profit and economic profit. Why do economists prefer to use economic profit when analyzing the profitability of firms?

(Figure: Profit Maximization for SoCalGas) Use Figure: Profit Maximization for SoCalGas. SoCalGas's unit profit is:

When sellers exit a market in which the average seller has losses, what results?

(Figure: The Cost Curves for Charlie's Cookie Confections) Use Figure: The Cost Curves for Charlie's Cookie Confections. The curve labeled X represents the firm's _____ cost curve.

Ever since Giselle's company developed its new product ten years ago, Giselle has managed its production with little turnover in workers. During that time, the company's average cost has fallen by 30%, due to the refinement of its production methods, thereby achieving greater efficiency. Other rival companies have not achieved such low costs. The cost advantage that Giselle's company now has over rivals is referred to as _____ achieved through _____.

A company's profit margin is calculated as:

Because _____ profit is calculated based on _____ costs, it allows firm owners to make better decisions about _____.

Adhika is deciding whether to open a company to produce step stools. He should start the company if he expects that:

Candice's stand-up paddleboard company will earn profits producing and selling at any output level where the company's:

Super Snackin Services is in long-run equilibrium, and then there is an increase in the market demand for snacks. One expects that:

How does a business owner know if it is financially worthwhile to open a business?

Strategies used by entrepreneurs to overcome barriers to entry do NOT include:

Amal gives up a salary of $80,000 per year to start his company. He invests $50,000 of his savings in his company, savings that had been earning him $4,000 per year in interest. During Amal's first year in business, total revenue is $300,000, and his explicit financial costs are $225,000. What is Amal's economic profit from his first year in business?

A company produces a particular cell phone that requires accessories (such as chargers, cases, and ear plugs) that are specific to that phone and cannot be used with phones manufactured by other companies. The company that produces this cell phone is using what strategy to create a barrier to entry?