ajaz_eco_204_2012_2013_chapter_13_Short_Run_CMP_PP

134 consider a company with two divisions division 1

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Unformatted text preview: ompany with two divisions: division 1 and division 2. Suppose the price of each division’s output are independent of output (i.e. constants). However, the are functions of output (i.e. are not () () constants): for example, perhaps and where are constants . Derive the breakeven quantity of division 1 (use the cost functions provided). Answer Total profits are: 3 ECO 204 Chapter 13: Practice Problems & Solutions for The Short 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. Breakeven point is when: ( ( ( ) ) ) This is a quadratic equation of the form: Where the solutions for are: √ Applying the quadratic rule formula to: ( ) ) ( ) ( ( ) ( ) ( ) We get: √ √ This will yield two solutions for the breakeven quantity. If the company is currently incurring losses, it should pick the breakeven quantity closest to the current output. (13.5) In this question you will examine the properties of the cost, average cost, average variable, average fixed and marginal cost functions for the short Cobb-Douglas production function: are parameters and may be positive, zero or negative. 4 ECO 204 Chapter 13: Practice Problems & Solutions for The Short 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. (a) When does this production function exhibit increasing, constant or decreasing returns to labor? What is the connection between returns and returns to scale? Answer Remember that returns to scale is a long run concept: it is about the impact of changing all inputs on output. In contrast, returns is a short run concept: it is about the impact of changing all variable inputs on output. The only variable input...
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This document was uploaded on 01/19/2014.

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