Homework -
Problem 1 - Suppose a firm has the production technology shown below for Goods 1 and 2.
Good 1
|
Q1
|
Cost $
|
|
10
|
50
|
|
20
|
100
|
|
30
|
150
|
Good 2
|
Q2
|
Cost $
|
|
10
|
60
|
|
20
|
100
|
|
30
|
130
|
Both Goods (1 and 2)
|
Q1
|
Q2
|
Cost $ (Good 1 + Good 2)
|
|
10
|
10
|
100
|
|
20
|
20
|
180
|
|
30
|
30
|
250
|
a. Does Good 1 indicate economies of scale? Why?
b. Does Good 2 indicate economies of scale? Why?
c. Do the two goods indicate economies of scope? Why?
Problem 2 - The table below depicts the cost and demand structure of B&B Medical Equipment Corporation. Q = quantity, TC = total costs, LRAC = long-run average cost, MC= marginal cost, MR = marginal revenue.
a. Calculate the long-run average cost (LRAC) and marginal (MC) cost at each output level (complete the table).
b. Graph the total cost function (see textbook, Figure 6-2, Panel B). Please use Excel to draw the diagram, when done, copy the diagram from the excel spreadsheet and paste it on the space provided below. (Hint: transfer columns Q and TC into an excel spreadsheet, highlight the set of values on those columns, click on "Insert", "Recommended charts", "Line".) Do not forget to label the functions and each axis.
c. Graph the long-run average cost function (see textbook, Figure 6-2). Please use Excel to draw the diagram, when done, copy the diagram from the excel spreadsheet and paste it on the space provided below. (Hint: transfer columns Q and LRAC into an excel spreadsheet, highlight the set of values on those columns, click on "Insert", "Recommended charts", "Line".) Do not forget to label the functions and each axis. FORT PART C, IT IS BEST TO EXCLUDE THE ROW OF ZERO OUTPUT.
d. See part c. In what region of the diagram does the firm exhibit economies of scale? Please explain.
e. See part c. In what region of the diagram does the firm exhibit diseconomies of scale? Please explain.
f. What output level should B&B Medical Equipment Corporation, a profit maximizing firm, choose given the above data? Please explain.
Attachment:- Assignment Files.rar