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Unformatted text preview: ization problem (PMP) is:
( ) ( () )
) ( ) At the optimum: 32
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:
( ) Thus: (12.9) Suppose AMD and Intel each have the following type of production function: Here ●
materials ● “technology & management” parameter ●
are parameters. fixed labor ● fixed capital ● variable What is the numerical value of AMD’s parameter ? What is the numerical value of Intel’s parameter ? Hint: Both
companies have the same value of . Show all calculations.
Both companies have constant returns which means that the function is linear in output: ()
Notice that “materials” is the only variable input so that for either company:
What is ? From the production function: [ 33 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. [ This implies that:
() The only way that the ⏟ function can be linear is if . Thus, both companies have the same parameter (12.10) Now suppose AMD’s production function is:
“technology & management” parameter ●
labor at AMD ●
Suppose Intel’s production function is:
management” parameter ●
labor at Intel ●
parameters. [ . where ●
AMD’s output ●
capital at AMD ●
materials at AMD ● where ●
Intel’s output ●
Intel’s “technology &
capital at Intel ●
materials at Intel ●
are Assume that AMD and Intel are currently: ● employing the same amount of labor (i.e.
) ● have identical parameters
● face identical input prices. ) ● using the same level of True or false: AMD’s “technology and management” is superior to Intel? Show all calculations and state all assumptions.
Hint: Both Intel and AMD pay the same price for mate...
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This document was uploaded on 01/19/2014.
- Fall '14