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Unformatted text preview: e Intel’s production function is:
management” parameter ●
labor at Intel ●
parameters. where ●
AMD’s output ●
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.
) ● 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 materials.
(12.11) Recall that the PDS’s “variable” inputs were quasi-variable power (denote by ) and quasi-variable labor (denote
by ) while its “fixed” inputs were quasi-fixed power, quasi-fixed labor and all other inputs. Denote all “fixed” inputs as
capital . Suppose PDS’s production function is: Assume
. Suppose the price of power is
/hour and the price of “capital” is . Given that
quasi-variable power ? Hint: Solve the CMP and use the fact that /hour and /hour, the price of quasi-variable labor is
hour what is the price of hour. Show all calculations below. (12.12) This question is based on the HBS case The Aluminum Industry in 1994. The following table contains the cost
structure of the average CIS primary aluminum smelter, the average state primary aluminum smelter, and the average
rational primary aluminum smelter (please note that cumulative capacity below is the total capacity of all smelters
within a category (for example, the total cumulative capacity of all CIS smelters is 1.788 million tons per year):
All cost figures are $/t
Variable costs are in BOLD Smelter Country
Average Capacity (‘000s tpy) Average CIS Average State
Smelter CIS All over All over CIS State Rational 243.73 120.74 121.53 5
ECO 204 Chapter 12: Practice Problems & Solution...
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- Fall '14