Question

 

You work for a company that is being accused of monopoly behavior, given its large size. Comparisons are made to the industry standard, where each establishment has on average about 16.3 employees. Your company is bigger than that, but you want to provide evidence against the monopoly charges.

a. You’ve collected data at different times in your company’s history, when you had different amounts of capital.

In 2012, SRATC = 17Q2 – 2,200Q + 100,000

In 2015, SRATC = 37Q2 – 1,500Q + 55,000

In 2018, SRATC = 20Q2 – 2,000Q + 75,000

Plot these three different SRATC curves (have Q go from 0 to 100 in units of 5; make the maximum on the vertical axis be 100,000), and discuss how (and possibly why) your company has changed since 2012 in terms of its size.

b. Make another column labeled “LRATC” that includes three points: 2015’s SRATC when Q = 5; 2018’s SRATC when Q = 50, and 2012’s SRATC when Q = 85. Plot these three points on your graph (be sure to show, don’t hide, the dots) and add a 2nd-degree polynomial trendline to represent your company’s LRATC.

c. In a more competitive industry with smaller firms, typical LRATC curves follow LRATC = 12Q2 – 250Q + 30,000. Using all available information in this question, present an argument that could be used to justify your company’s size.

Answer 1

a).

Consider the following fig shows the three cost functions for “2012”, “2015” and “2018”.

b).

Consider the following fig shows the LRATC of the firm.

So, here the cost function is given by, “LRATC = 53,621 - 1091.1*Q + 10.373*Q^2”.

c).

Now, the above fig also shows the LRATC of another firm. Now, if we compare these firm with each other then LRATC for “firm1” is much lower compare to “firm2” as “Q” increases, => the 1st firm is larger compare to the 2nd one.