Unformatted text preview: y substituted for a unit of sugar. Denote the
price of fructose as . Write down Ajax Cola’s production function.
(g) For the production function in part (5), calculate the optimal inputs and cost function of producing target output .
Show all calculations below.
(h) What is the elasticity of total cost with respect to sugar prices in the “new” technology? Was it a good idea for Ajax
Cola to have reconfigured its technology to allow the use of sugar and/or fructose as sweeteners? Show all calculations
(12.8) The Prestigious Ajax Company (PAC) consists of two divisions “1” and “2”. Each division produces the same
product using labor ( ) and fixed capital ( ) as inputs but with different technologies. Division 1 produces output
according to: While division 2 produces output according to: Assume both divisions have ample capacity and produce and sell output in distinct markets. Currently
(a) Calculate the optimal labor required to produce target output
Show all calculations below. in Division 1 and target output in Division 2. (b) What are Division 1 and 2’s cost functions? Show all calculations below.
(c) Assuming Division 1’s demand function is
and Division 2’s demand function is
What are the optimal Division 1 and 2 outputs and prices if there no possibility of arbitrage between the two division’s
markets? Show all calculations below.
(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.
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. (12.10) Now suppose AMD’s production function is:
“technology & management” parameter ●
labor at AMD ●
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This document was uploaded on 01/19/2014.
- Fall '14