ECO 550 George Webb Restaurant Case Study

ECO 550 George Webb Restaurant Case Study

Question 1

Evidence from empirical studies of long-run cost-output relationships lends support to the:

existence of a non-linear cubic total cost function

hypothesis that marginal costs first decrease, then gradually increase over the normal operating range of the firm

hypothesis that total costs increase quadratically over the ranges of output examined

hypothesis that total costs increase linearly over some considerable range of output examined

Question 2

Theoretically, in a long-run cost function:

all inputs are fixed

all inputs are considered variable

some inputs are always fixed

capital and labor are always combined in fixed proportions

Question 3

George Webb Restaurant collects on the average $5 per customer at its breakfast & lunch diner. Its variable cost per customer averages $3, and its annual fixed cost is $40,000. If George Webb wants to make a profit of $20,000 per year at the diner, it will have to serve__________ customers per year.

10,000 customers

20,000 customers

30,000 customers

40,000 customers

50,000 customers

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