Question: Use the events described in the news clip in Problem. By how much will Avalon's shortrun decision increase its total variable cost? By how much will Avalon's long-run decision increase its monthly total fixed cost? Sketch Avalon's short-run ATC curve before and after the events described in the news clip.
Problem: A Bakery on the Rise Some 500 customers a day line up to buy Avalon's breads, scones, muffins, and coffee. Staffing and management are concerns. Avalon now employs 35 and plans to hire 15 more. Its payroll will climb by 30 percent to 40 percent. The new CEO has executed an ambitious agenda that includes the move to a larger space, which will increase the rent from $3,500 to $10,000 a month.
a. Which of Avalon's decisions described in the news clip is a short-run decision and which is a long-run decision?
b. Why is Avalon's long-run decision riskier than its short-run decision?