ajaz_eco_204_2012_2013_chapter_12_Long_Run_CMP_PP

Recall that all cost figures are t variable costs are

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Unformatted text preview: We are being asked to investigate the impact on the average rational smelter’s profits due to a change in a parameter – the easiest way to solve this is by the envelope theorem. To do this, we must first find out the average rational smelter’s output. Recall that: All cost figures are $/t Variable costs are in BOLD Smelter Country Company Average Capacity (‘000s tpy) Total electricity cost Total alumina cost Other raw materials Plant power and fuel Consumables Maintenance Labor Average CIS Average State Smelter Smelter Average Rational Smelter CIS All over All over CIS State Rational 243.73 120.74 121.53 148.62 454.49 292.29 382.13 407.27 348.49 63.69 163.57 120.62 4.51 11.81 10.34 76.92 56.72 73.91 39.57 46.45 53.84 17.80 62.73 194.19 48 ECO 204 Chapter 12: Practice Problems & Solutions for The Long Run Cost Minimization Problem in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. 68.76 General and administrative Cumulative capacity (‘000s of tons/year) (all smelters in a category) () Total variable costs per ton ($/ton) = 53.17 37.82 67.11 Freight 52.48 86.58 1,788.07 (All CIS) 2,826.95 (All state) 16,962.17 (All rational) 740.14 1,135.25 873.15 Since we assumed all smelters have constant returns, the average rational smelter’s [: () $873.15 for [ Average Rational Smelter $ Supply Curve MC = 873.25 Qty qc = 121.53 Currently, the price of aluminum is $1,100/ton and since: () The average rational smelter will produce at full capacity (i.e. case “C”): 49 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. Average Rational Smelter Supply Curve $ P = $1,100 MR MC = $873.25 Qty qc = 121.53 Case C when Thus: () () and: () () Since () then fixed cost items we have: () ( ) Moreover, adding up all average ( ) Therefore: ()...
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