ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP_PP

Calculate abcs expected cost of carrying passengers

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Unformatted text preview: solve the problem: ( ) (b) Derive ABC’s (long-run) cost function. Please show all calculations below and state any assumptions. (c) This question should be answered independently of all other questions (i.e. the numbers given here for and are for this question only). Suppose and can be either $20 with probability ¾ or $40 with probability ¼. Calculate ABC’s expected cost of carrying passengers. Please show all calculations below. (d) Derive ABC’s average cost function. What is the Minimum Efficient Scale (MES)? Please show all calculations below and state any assumptions. (e) What is the impact on ABC’s optimal cost if the target passengers increases by 1 passenger? Please show all calculations below. (f) What is the impact on ABC’s optimal cost (in percentage terms) from a 1% increase in target passengers? Please show all calculations below. (g) What is the impact on ABC’s optimal cost (in percentage terms) from a 1% increase in wages? Please show all calculations below. (h) Does ABC’s technology have economies of scope? Should it merge with another bus company with an identical technology? Please show all calculations below. (i) Assume that ABC is a rational competitive firm with a capacity of 1,000 passengers a day. Denote the price of bus tickets by . Suppose Solve the profit maximization problem: For what range of wages ( ) will ABC choose to sell no tickets, one thousand tickets, and between zero and 1,000 tickets? Show all calculations. (12.14) Assume that Ajax Inc. owns capital that it uses to produce output. The company purchased capital at the purchase price of the capital was ( ) and capital has a lifetime of periods. Denote the opportunity cost rate of return in period by ( ). 7 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. (a) Suppose this company uses straight line deprecation methods. What is , t...
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This document was uploaded on 01/19/2014.

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