Unformatted text preview: s for The Long Run Cost Minimization Problem in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. 148.62 General and administrative
Cumulative capacity (‘000s of tons/year)
(all smelters in a category)
Total variable costs per ton ($/ton) = () 10.34 56.72 73.91 46.45 53.84 62.73 194.19 53.17 37.82 67.11 Freight 11.81 68.76 Labor 120.62 17.80 Maintenance 163.57 39.57 Consumables 348.49 76.92 Plant power and fuel 407.27 4.51 Other raw materials 292.29 63.69 Total alumina cost 454.49 382.13 Total electricity cost 52.48 86.58 1,788.07
(All CIS) 2,826.95
(All state) 16,962.17
(All rational) 740.14 1,135.25 873.15 (a) Solve the profit maximizing problem for the average rational primary aluminum smelter:
() Here price of aluminum/ton, Total fixed Cost, ( ) = Total variable cost and capacity. Assume . Show all calculations.
(b) Based on your answer to part (a) what is the impact on the average rational smelter’s optimal profits from, holding
all else constant, a 1% increase in: The price of aluminum?
The minimum output?
Fixed cost? Assume that /ton. Show all calculations. (12.13) Ajax Bus Company (ABC) operates a bus service between Robarts library and the Rotman School of
Management. Each ABC bus (capital) carries 100 passengers and requires a driver and a conductor (labor). 6
ECO 204 Chapter 12: Practice Problems & Solutions for The Long Run Cost Minimization Problem in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Let
number of buses/day,
number of workers (labor) per day, and
number of passengers/day. Denote the
price of leasing (or owning) buses per day by
and daily wages by (assume that drivers and conductors have the
same daily wage). In this question, all inputs are variable.
( ) (a) If ABC wishes to carry passengers per day, what is the optimal (cost minimizing) number of buses and labor per
day? That is,...
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- Fall '14
- Economics, Economics of production, S. Ajaz Hussain