ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP_PP

Eco 204 s ajaz hussain do not distribute case b this

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

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: his version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Case B This requires that with the FOC: and Substitute and . Start : Thus, for . This requires to check the conditions under which we need: () That is, if price falls below ABC should not serve any passengers: One can also re-state this as: Intuitively, case B says that if the wages are too high, ABC should not serve any passengers. Case C This requires that with the FOC: Substitute and . This requires to check the conditions under which and . Start : 62 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. Thus, for we need: () That is, if price is equal to or above ABC should serve 1,000 passengers. One can also re-state this as: Intuitively, case C says that if the wages are sufficiently low, ABC should serve the maximum capacity. Case D This requires that and requires checking when and Start with the FOC: Substitute () Intuitively, case D says that if when price equals ABC will carry anywhere from zero to 1,000 passengers. This can be re-expressed as: 63 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. Combing all cases, ABC’s supply curve is: () {[ () () Or: {[ (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 ( ). (a) Suppose this company uses straight line deprecation methods. What is , the depreciation of capital, in each period? State all assumptions and show all calculations. Answer Using straight line depreciation methods and assuming zero salvage value at be: the depreciation in each period will () (b) Derive an expression for ( ), the value of capital in period , in t...
View Full Document

This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online