Chapter%206%20Answers

Chapter%206%20Answers - Chapter 6 Answers I. 1. 2. 3. 4. 5....

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Chapter 6 Answers I. Multiple-choice questions: 1. B 2. D 3. C 4. C 5. C 6. B 7. B 8. C 9. B 10. B 11. D 12. D 13. D 14. B 15. D 16. D 17. B 18. A 19. D 20. B 21. B II. Short-answer questions 1. Part a – c. Profit maximizing output is where P*= MC. The break-even point is the minimum of the ATC curve. The shutdown point is the minimum of the AVC curve. If price is above the minimum of the ATC curve, then Krispy Kreme is making positive profits. Profits equal total revenue minus cost. (π = P•Q-ATC•Q). ATC AVC MC Quantity Price Break-even Point Shut-down Point P* q Profit
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d. Labor is a variable cost so if the price of labor increases (a wage increase), then the AVC curve will shift up. Furthermore, the MC curve will increase because each additional unit of labor will be more expensive. Lastly, since ATC=AFC + AVC, ATC will shift up as well. e. Krispy Kreme will stay in business in the short-run if P* is above the new shut- down point (the minimum of the new AVC curve).
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This note was uploaded on 03/16/2010 for the course ECON 1 taught by Professor Tang during the Winter '08 term at UCSD.

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Chapter%206%20Answers - Chapter 6 Answers I. 1. 2. 3. 4. 5....

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