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Unformatted text preview: ECON 468: Industrial Organization Problem Set 1 Due date: February 12th January 29, 2008 1. The only factory of a small town employs workers for $5 an hour, for forty-hour weeks. The closest urban center is located at 1 hour driving, and the average comparable wage is $10 an hour (also for forty-hour weeks). If the commuting cost is $10 (one-way), what is the opportunity cost of working and living in the small-town factory? 2. A firm can choose between two production technologies for a new product line. If it installs technology 1, its yearly costs will be C 1 ( q ) = 10 + 2 q 2 . If it installs technology 2, its yearly costs will be C 2 ( q ) = 30 + q 2 2 . (a) What is the firms long-run average cost curve 1 ? (b) What is the firms minimum e ffi cient scale of production (i.e. minimum of the long-run average cost curve)? (c) Which technology would the firm prefer (purely from a cost standpoint) if the expected demand is 10?...
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This note was uploaded on 08/08/2008 for the course ECON 468 taught by Professor Houde during the Spring '08 term at Wisconsin.
- Spring '08
- Perfect Competition