ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP_PP

Ajaz hussain do not distribute m mutton l labor l2m 2

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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 ( )...
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This document was uploaded on 01/19/2014.

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