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E303lect33F09 - Reading Ch 5 pp 177-185 Problem Set#11 Due...

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November 13, 2009 Reading: Ch. 5, pp. 177-185 Problem Set #11. Due Monday Test #2 WEDNESDAY Comments: 1) On HW#11 – Where I draw a LRAC, it is supposed to hit a flat place, then run parallel to the horizontal axis, and then turn up. 2) On HW#10 – Several students complained about my grading of the following Q TFC TVC TC MC AFC AVC ATC 0 10 0 10 1 10 6 16 6 10 6 16 2 10 10 20 4 5 5 10 3 10 12 22 2 3.333333 4 7.333333 4 10 16 26 4 2.5 4 6.5 5 10 23 33 7 2 4.6 6.6 6 10 35 45 12 1.666667 5.833333 7.5 7 10 53 63 18 1.428571 7.571429 9 8 10 78 88 25 1.25 9.75 11 Some students argue that, say at a price of $10, the breakeven point is 2 units because at that point TR=20 and TC=20. This is incorrect because it is NOT AN OPTIMUM. The breakeven price is the minimum point on the ATC curve, $6.50. (I have cleaned up the presentation in lecture 30, which you can copy off from blackboard). Lecture 33 REVIEW___________________________________________________: c. Algebraic Forms of the Cost Function. 1. Solving Algebraic specifications 2. Production and pricing decisions. 3. Long Run Costs a. Long run average costs b. Economies of Scale, Diseconomies of Scale PREVIEW ____________________________________________________ c. Survivability d. Measuring returns to scale 4. Multiple Output Cost Functions Lecture__________________________________________________________ c. Survivability: The shape of the LRAC can determine how many firms can survive in an industry. 1
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- Suppose that MES is 10,000 units, and that market demand, at a competitive price is 40,000 units. How many efficient firms can survive in the industry? - Suppose that MES is 10,000 units, but that diseconomies of scale set in very soon after achieving the optimal plant size. Can a single firm efficiently service the industry?
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