Question

In: Economics

1. A firm produces 100 units of good A at a total cost of $1,500and...

1. A firm produces 100 units of good A at a total cost of $1,500 and separately 200 units of good B at a cost of $2,000. By combining the production of A and B, it is possible to produce the same quantities of A and B respectively at a combined total cost of $2,238. Compute the economies of scope experienced by this firm.


Hint: Write your answer to two decimal places.


2. Suppose we are given a profit function  Q = 12L.5K.5 . The price of labor is $6 per unit and the price of capital (K) is $15 per unit. The firm is interested in the optimal mix of inputs to minimize the cost of producing any level of output Q. In the optimal mix the ratio of labor to capital is ____ .


Hint: Write your answer to two decimal places. When discussing ratios the convention is "ratio of a to b" is

a/b"


3. A  firm’s long-run average cost curve is estimated by the equation: LAC = 1,000 – 1.6Q + .005Q2 . What is the lowest price per unit sold that would prevent the firm from shutting down in the long run?


Hint: Write the answer to two decimal places.



Solutions

Expert Solution

1) Total cost (separate) = A + B = 1000 + 1500 = 3500

Total cost (actual) = 2238

Economies of scope = (3500 - 2238)/3500 = 0.36

2) For optimal mix: MPL/w = MPK/r

MPL = dQ/dL = 6(K/L)0.5

MPK = 6(L/K)0.5

MPL/MPK = K/L = 6/15

L/K = 2.5

3) lowest price = min ATC

ATC = 1000 - 1.6Q + 0.005Q2

ATC is minimum when d(ATC)/dQ = 0

0.01Q = 1.6

Q = 160

lowest price = 1000 - 1.6 x 160 + 0.005 x 1602 = 872


Related Solutions

A firm is producing 1,000 units of a good and the total cost of production is...
A firm is producing 1,000 units of a good and the total cost of production is $4 million. $1 million in costs go to fixed factors like buildings, insurances, and operating licenses. The remaining $3 million goes to workers and suppliers. a) Using the numbers provided, calculate the average total cost, the average fixed cost, and the average variable cost? b) Explain what is meant by marginal cost? c) If the marginal cost for the firm of producing 1,000 units...
A monopolistic competitor produces 100 units of a good at aper-unit cost of $22. If...
A monopolistic competitor produces 100 units of a good at a per-unit cost of $22. If it charges a price of $19 per unit of the good, it will ________.A. earn zero economic profits in the short runB. incur a loss of $300 in the short runC. earn a profit of $1,900 in the short runD. incur a loss of $100 in the short runA monopolistically competitive firm makes positive economic profits if ________.A. price is less than average total...
Suppose the price of a good is $100.  Suppose when a particular firm producing this good produces...
Suppose the price of a good is $100.  Suppose when a particular firm producing this good produces 1000 units a week, its average cost is $90.  This firm operates in a competitive market and therefore, can sell whatever quantity it wants to sell at this price.  What profit would this firm be making each week? Is the answer $10000?
Date Transaction Units In Unit Cost Total Units Sold Sales Price Total 7/1 Balance 100 4.10...
Date Transaction Units In Unit Cost Total Units Sold Sales Price Total 7/1 Balance 100 4.10 410 7/6 Purchase 800 4.20 3,360 7/7 Sale 300 7.00 2,100 7/10 Sale 300 7.30 2,190 7/12 Purchase 400 4.50 1,800 7/15 Sale 200 7.40 1,480 7/18 Purchase 300 4.60 1,380 7/22 Sale 400 7.40 2,960 7/25 Purchase 500 4.58 2,290 7/30 Sale 200 7.50 1,500 Totals 2,100 9,240 1,400 10,230 Compute FIFO, LIFO, Average for the perpetual inventory system. Be sure to do...
Date Transaction Units In Unit Cost Total Units Sold Sales Price Total 7/1 Balance 100 4.10...
Date Transaction Units In Unit Cost Total Units Sold Sales Price Total 7/1 Balance 100 4.10 410 7/6 Purchase 800 4.20 3,360 7/7 Sale 300 7.00 2,100 7/10 Sale 300 7.30 2,190 7/12 Purchase 400 4.50 1,800 7/15 Sale 200 7.40 1,480 7/18 Purchase 300 4.60 1,380 7/22 Sale 400 7.40 2,960 7/25 Purchase 500 4.58 2,290 7/30 Sale 200 7.50 1,500 Totals 2,100 9,240 1,400 10,230 Compute FIFO, LIFO, Average for the periodic inventory system. Be sure to do...
Question (2) Units Unit Cost ($) Total Jan. 1 (Beg.)          100                  15    
Question (2) Units Unit Cost ($) Total Jan. 1 (Beg.)          100                  15       1,500 Jan. 15 Purchase            100                  20       2,000 Jan. 20 Purchase            200                  25       5,000 Jan. 25 Purchase            150                  30       4,500 Total          550     13,000 Jan. 30 Sold          220 Selling Price ($)             50 Required: Assume ABC uses the Weighted – Average method calculate I-ending inventory, II-cost of goods sold andIII-gross profit.   Assume ABC uses LIFOmethod calculate I-ending inventory, II-cost of goods sold andIII-gross profit.  
A firm is producing 25,000 units of output at a total cost of$933,000. The firm's...
A firm is producing 25,000 units of output at a total cost of $933,000. The firm's average variable cost is $32.5 per unit. What is the firm's total fixed cost and average variable costs?
PRODUCTION UNITS 100 END INV UNITS          20 TOTAL PRODUCTION COST 20000 EUROS TOTAL FIXED MOH              1000...
PRODUCTION UNITS 100 END INV UNITS          20 TOTAL PRODUCTION COST 20000 EUROS TOTAL FIXED MOH              1000 EUROS a. Data is missing b. Full Costing OPINC 200 EUROS higher than VC OPINC C. Full Costing OPINC =VC OPINC   d. Full Costing OPINC 200 euros lower than VC OPINC
1. Suppose a firm has the following total cost function: TC = 100 + 4q^2 a....
1. Suppose a firm has the following total cost function: TC = 100 + 4q^2 a. What is the minimum price necessary for the firm to earn profit? You must explain your reasoning and process as to how your found the price you found. b. Below what price will the firm shut down in the short run?
The following are the total cost for differing amounts of units of hammers. Units Total Cost...
The following are the total cost for differing amounts of units of hammers. Units Total Cost 26,200 $975,000 44,100 $1,456,400 18,700 $770,600 27,600 $1,011,100 34,400 $1,197,700 What is the variable cost per unit? Using your answer in the above question, estimate the total cost for 25,000 hammers.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT