Expansion Your firm prints the novelty baseball cards that candy makers include in their bubblegum. Since you regularly sell 100,000 cards per week, you invested in four separate production lines that can each produce 25,000 cards in a standard 40 hour
work week. Now a few of the candy makers are signed long term contract that will increase their orders so that you will need to produce 150,000 cards per week. If you can invest in two new production lines at the same cost as your previous four, what does this imply for the shape of your long-run marginal cost curve? What does it imply for changes in your pricing?
Since this increase in production seems likely to be permanent, it pays to invest in additional production lines. But your facility can scale up at the same cost as before or that long-run marginal costs are constant. This means that you need not adjust prices for cost reasons.
You might also like to view...
In a labor-market separating equilibrium with high-skill and low-skill workers and where a costly educational degree is used solely as a signal device, we can say that
A) education is socially inefficient because it is costly and provides no useful skills to the worker. B) education is socially efficient. C) education is privately inefficient for high-skill workers. D) education is privately useful for low-skill workers only.
Suppose a recession occurs as a result of a negative supply shock, and instead of the economy naturally working its way back to equilibrium, the government uses policy to shift the aggregate demand curve to fight the recession. Using policy this way would
A) bring real GDP back to potential GDP more quickly but would result in a permanently higher price level. B) bring real GDP back to potential GDP more slowly but would bring the price level back to the original price level more quickly. C) quickly result in a new, higher level of real GDP and a permanently lower price level. D) bring the price level back to its original level more quickly but would result in a permanently lower level of potential GDP.