ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP_PP

# Ajaz hussain do not distribute m mutton l labor l2m 2

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: nt RTS because with doubled inputs, ( which is ) ( | which is the slope from below any will do. ) Example: with doubled inputs: ( ) ( ) Therefore constant returns to scale. 22 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. M (Mutton) L (Labor) L=2M 2 Mutton 1 Beef Slope = L B (Beef) Meat (c) Derive the cost function of “surf” plates and from this characterize the returns to scale. Show all calculations. Answer () ( Now, ) and at optimum, and . () ( ) Notice () () Which is a constant, so this function exhibits constant returns to scale. (d) Derive the cost function of “turf” plates and from this characterize the returns to scale. Show all calculations. Answer () ( Now ) ([ ) ( ) At optimum: () Now, and [ so, 23 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. () [ ( ( ) ( ) ) () ( ) M When , the amount of that ( ) is When , the amount of that ( ) s.t and If If () ( () ) ( ) ( )( ) ( Note: Beef in meat ) Note: Mutton in meat In both cases there are constant returns to scale. (e) Suppose plate is \$1.50 ( . Show that the cost of a “surf” plate is \$1.50 and the cost of a “turf” ). Please show all calculations. Answer We need to check if or 24 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. () ( ) () ( ) ( ) ( ) (12.7) Ajax Cola, a soft drinks manufacturer, uses a technology that combines equal amounts of sweetener, labor ( ), capital ( ), and materials ( ) as complementary inputs to produce soft drinks ( ). Currently, Ajax Cola uses sugar ( )...
View Full Document

## This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online