ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP_PP

Eco 204 s ajaz hussain do not distribute thus thus 129

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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 ● output ● 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. Answer 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 ● are parameters. Suppose Intel’s production function is: management” parameter ● labor at Intel ● parameters. [ . where ● AMD’s output ● AMD’s 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. capital (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.

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