ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP_PP

Eco 204 s ajaz hussain do not distribute thus thus 129

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

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ization problem (PMP) is: () ( ( ) ( () ) ) ( ( ) ) ( ) At the optimum: 32 ECO 204 Chapter 12: Practice Problems &amp; 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 &amp; 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 &amp; 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 &amp; 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 &amp; 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...
View Full Document

This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online