ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP_PP

Eco 204 s ajaz hussain do not distribute d derive abcs

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Unformatted text preview: 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. (d) Derive ABC’s average cost function. What is the Minimum Efficient Scale (MES)? Please show all calculations below and state any assumptions. Answer Returning to: () We have: () () () () This is always constant (as we argued in part (b)): AC Q The MES is the smallest output needed to reach lowest average cost. Since units. is always constant, the MES must be zero (e) What is the impact on ABC’s optimal cost if the target passengers increases by 1 passenger? Please show all calculations below. 57 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. Answer We’re being asked for the incremental cost of carrying another passenger. This is, of course, the marginal cost: () () () This is constant and equal to . (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. Answer We’re being asked for the percentage incremental cost of carrying 1% more passengers. That is, we’re being asked for: () Use the log method to calculate this elasticity: () () () ( ) Now: () () Carrying 1% more passengers, raises total cost by 1%. (g) What is the impact on ABC’s optimal cost (in percentage terms) from a 1% increase in wages? Please show all calculations below. Answer We’re being asked for the percentage incremental cost due to 1% increase in wages. That is, we’re being asked for: 58 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. () Notice that we cannot use the log method easily since: () ( ) Note that computing: () () Is not easy. Instead, directly calculate the...
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This document was uploaded on 01/19/2014.

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