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3. Suppose that in 2010, you became president of a small nonprofit theater company. Your playhouse has
120 seats and a small stage. The actors have national reputations, and demand for tickets is enormous
relative to the number of seats available; every performance is sold out months in advance. You are
elected because you have demonstrated an ability to raise funds successfully. Describe some of the
decisions that you must make in the short run. What might you consider to be your fixed factor? What
alternative decisions might you be able to make in the long run? Explain.
= On the short run, to increase the revenue we are earning, We could add a meet and greet with the
actors or increase the ticket prices to take advantage of the popularity of the show. The Fixed factor of the
playhouse would be the capacity. 120 seats only and a small stage. On the long run, since were always
fully booked. We can raise enough funds for adding more seats and a bigger stage.
18. Which of the following are short-run decisions and which are
long-run decisions?
a. General Motors decides to add a second shift to its
Arlington, Texas production plant.
b. Gotham Foods International chooses to exit the restaurant
industry to concentrate on its wholesale grocery
supply business.
c. The Sahara Hotel and Casino in Las Vegas closes two of its
three hotel towers in response to low demand.
d. Tony Andretti, owner of Tony the Taxman, hires five new
CPAs to work at his tax preparation business.
Determinants of Supply
The demand curve will shift in accordance with a change in a determinant and
so will the supply curve. Keep in mind that five determinants exist each for the
demand curve and for the supply curve and each can prompt a shift in one
curve or both curves. Because it is quite easy to feel overwhelmed and lose
track of a critical sequence when more than one curve shift occurs, the author
of this essay encourages students to contemplate only one change in one
determinant of supply or demand at a time. In other words, each change will
likely produce a shift in the curve under consideration.
Before listing the sets of determinants, price analysis is easier by committing
to memory various aspects of curve shifts. A rightward, outward, or upward
shift in the demand curve is an increase in demand whereas an opposite shift
is a decrease in demand. By extension, an increase (decrease) in demand
means consumers will purchase a larger (smaller) quantity of an item at any
given price. A rightward, downward, or outward shift in the supply curve is as
an increase in supply whereas an opposite shift is a decrease in supply.
Likewise, an increase (decrease) in supply means producers will supply a
larger (smaller) quantity of an item at any given price. In contrast to curve
shifts, any movement along a demand curve or a supply curve is respectively
a change in quantity demanded or quantity supplied to which there is a
corresponding change in price.
The list of five determinants for demand and those for supply is as follows:
Demand Supply Consumer income Prices of alternative outputs Population or
number of buyers Number of sellers Consumer tastes and preferences
Technology Prices of related goods Resource prices Expected prices
Expected prices
Correspondence between prices and quantities is revealed through demand
and supply schedules. Construction of these schedules occurs at two levels of
aggregation. Compilations of a market-level demand schedule and supply