HW chap 8-2

# Whatisitsefficientscaleofproduction

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Unformatted text preview: is the output where average cost is minimized. Average cost is minimized at the output where average cost equals marginal cost. Dan's Pizza Company's average cost of production is: To find the output where average cost equals marginal cost, equate: http://e z to.mhe c loud.mc gr a w- hill.c om/hm.tpx? todo= pr intvie w 5/9 1/22/2014 Assignme nt Pr int Vie w The corresponding average cost is 720/240 + 5 + 240/80 = \$11. 12. awar d: 5 out of 5.00 points Suppose Alpha Corporation's daily cost function is Its marginal cost is a. What is its efficient scale of production? Instructions: Enter your answer as a whole number. 125 b. What is its minimum average cost? Instructions: Enter your answer as a whole number. \$68750 Worksheet Section: Average and Marginal Costs Suppose Alpha Corporation's daily cost function is Its marginal cost is a. What is its efficient scale of production? Instructions: Enter your answer as a whole number. 125 b. What is its minimum average cost? Instructions: Enter your answer as a whole number. \$ 68750 http://e z to.mhe c loud.mc gr a w- hill.c om/hm.tpx? todo= pr intvie w 6/9 1/22/2014 Assignme nt Pr int Vie w Explanation: An efficient scale of production is the output where the average cost of production is minimized. Average cost is minimized at the output level where average cost equals marginal cost. Note that Alpha Corporation's average cost is: Solve AC(Q) = MC(Q) to find the Q where average cost equals marginal cost. Since we are looking for Q > 0, the above equation implies Q = 125. Hence, its minimum efficient scale is Q = 125. When Q = 125, its average cost is \$68,750. 15. awar d: 5 out of 5.00 points Hannah and Sam run Moretown Makeovers, a home remodeling business. The number of square feet they can remodel in a week is described by the Cobb­Douglas production function where L is their number of workers and K is units of capital. The wage rate is \$100 per week and a unit of capital costs \$2,500 per week. Suppose that when initially pro...
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