aps6 301 f06_Solutions

# aps6 301 f06_Solutions - Econ 301 F06 PROBLEM SET 6 ANSWERS...

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Econ 301 - F06 PROBLEM SET 6 - ANSWERS Wissink 1. See below. a. Not necessarily. Must also check 2nd-order condition (that mc cuts mr from below) and shut-down condition (that p $sravc in short-run or p$ lratc in long-run). b. Not necessarily - could be that at mr = srmc, p < sratc, but p > sravc. In short-run you would still produce in order to minimize losses. c. Not necessarily. If implicit opportunity costs are large enough then it could be that accounting B > 0 while economic B < 0. d. False. Remember B = 0 is economic B , which includes as a cost the implicit opportunity cost of owners time, labor and other resources, etc. e. Dumb statement. Want to cost minimize at every level of output in order to profit maximize. f. Not necessarily. Some fixed costs may be avoidable through resale, sub-letting, etc., and therefore not sunk, or not fully sunk. 2. a. 1st 1000 in A. b. 1000 in A and 1000 in B or 2000 in A. c. 2000 in A and 1000 in B. d. x* = 6000, p* = 400, produce 4000 in A, 2000 in B e. In general, at the optimal distribution of production it should be true that mc of the last unit produced in A = mc of last unit made in B. Note: this is the condition you would want in a continuous situation, i.e., when output is completely divisible in both plants. In the question on the problem set, output changes by thousands, so the condition might not hold at some output levels. Not to worry. f. Produce to capacity in A then start production in B. (Didn’t mean for you to do the rest of the problem now, just the first question.) 3. a. Set up the “bang/buck” ratios:

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aps6 301 f06_Solutions - Econ 301 F06 PROBLEM SET 6 ANSWERS...

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