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ajaz_eco_204_2012_2013_chapter_11_producer_theory_PP

# ajaz_eco_204_2012_2013_chapter_11_producer_theory_PP -...

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University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. 1 ECO 204 Chapter 11: Practice Problems & Solutions for Producer Theory The Basics in ECO 204 (this version 2012-2013) Department of Economics (STG), ECO 204, Sayed Ajaz Hussain _________________________________________________________________________________________________ P RACTICE P ROBLEMS W ITH S OLUTIONS TO : C HAPTER 11 : Producer Theory The Basics Updated: 2/23/2013 (11.1) True or false: solving a CMP with the production function will yield identical answers for ( ) as solving the CMP with the production function ( ) ? Give a very brief explanation. Do NOT solve the Cost Minimization Problem. (11.2) In the paper “Econometric Analysis of Collusive Behavior in a Soft - Drink Market” published in the Journal of Economics and Management Strategy (Summer 1992), Gamsi, Laffont and Vuong (GLV) estimated the following demand functions for Coke and Pepsi concentrate syrup based on quarterly data 1968 1986: The subscript is for Coke and is for Pepsi and is quarterly quantity of syrup sold, is price of syrup (1986 dollars), is square root of quarterly advertising expenses (1986 dollars), if spring/summer and zero otherwise, and is real income (1986 dollars). GLV estimated Coke and Pepsi’s average variable cost to be (these are constant across seasons): What type of “returns to variable inputs” do Pepsi and Coke have? Give a brief explanation. (11.3) Founded in January 2010, Dulce & Havana (D & H) designs and manufactures high end men’s jackets right here in Toronto. D & H manufactures jackets according to the production function: Here is number of jackets manufactured, is fixed labor, is materials, and is fixed capital. Does D & H have increasing, constant, or decreasing returns? Provide an argument for your answer. (11.4) Edison Chang has the production function . Suppose Edison Chang is in the long run. Calculate Edison Chang’s MRTS -- show all calculations clearly.

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University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. 2 ECO 204 Chapter 11: Practice Problems & Solutions for Producer Theory The Basics in ECO 204 (this version 2012-2013) (11.5) A company uses Labor ( ) , Capital ( ) and Materials ( ) as inputs to produce target output q with the production function . (a) For what values of will this company have constant returns to scale? Show your calculations below. (b) For what values of will this company have decreasing returns with respect to materials? Show your calculations below. (11.6) A company uses Labor ( ) and Capital ( ) as inputs to produce target output q with the production function ( ) For what values of will this company have increasing returns to scale? Show your calculations below. (11.7) E-Torre Enterprises used labor ( ) and capital ( ) to produce its target output q according to the production function where and . E-Torre procures labor and capital in competitive markets. Currently, and .
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