Chapter 8 Homework Key.pdf - Chapter 8 Homework(13 Points Last Name_KEY 1 Which of the following could have caused the supply and average variable cost

Chapter 8 Homework Key.pdf - Chapter 8 Homework(13 Points...

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1 Chapter 8 - Homework (13 Points) Last Name:_____KEY_______________________ 1)Which of the following could have caused the supply and average variable cost curves to shift outward? a.A decrease in average fixed costs i.This does not affect the supply or AVC b.A decrease in wages i.This decrease causes the inputs in supply to be cheaper, which shifts the supply curve to the right. This would also decrease VC because labor is variable. c.An increase in input prices i.This increase would have the opposite effect of what the graph shows. Increasing input prices causes the supply curve to shift inward and the VC to increase. d.An increase in rental payments or property taxes i.These increases would cause the same effect as Answer C. 2) In a perfectly competitive industry, the equilibrium price is $56 and the minimum average total cost of the industry’s firms is $40. If thi s is a constant-cost industry, we can expect that in the long run, firms will _______ the market, shifting the industry’s short - run supply curve ______________________. a. Enter; outward until the minimum average total cost rises to $56. b. Enter; inward until firms are making positive profit c. Enter; outward until the new equilibrium price is $40. i. Because the price is greater than the ATC, firms are making positive profits (Think of it as we are NOT currently in the long-run equilibrium because we are not at the point where ATC=MC=P basically we are located at the middle adjustment step between two long-run equilibriums). Because of the positive profits, firms will ENTER the industry. Because more firms are in the industry, the supply curve with shift outward until the new equilibrium price is equal to the ATC. When comparing this problem to the graphing problems in the notes, this problem skips that first step of a shock occurring in the market. This problem starts at the second
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