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Econ475PS1 - Middle East Technical University Department of...

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Unformatted text preview: Middle East Technical University Department of Economics ECON 475-Introduction to Mathematical Economics Fall 2009-2010 Problem Set 1 Ebru Voyvoda and Ozlem Tonguc 1. In the Theory of the Firm, we consider the total cost, C to be a function of output level Q : C = f ( Q ) (a) According to the definition of a function, should each cost figure be associated with a unique level of output? (b) Should each level of output determine a unique cost figure? Explain. 2. If an output level Q 1 can be produced at a cost of C 1 , then it must also be possible (by being less efficient), to produce Q 1 at a cost of say, C 1 + a , a > 0. Thus, it seems that each level of output does not uniquely determine a total cost value, but a set of values. If so, wouldn’t it be that to write C = f ( Q ) violate the definition of a function? How, in spite of this reasoning can you justify the use of cost function, C = f ( Q )?...
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