parts. a) (i) Average cost curve as plotted in excel. (ii) For optimal quantity‚ differentiate the trend-line equation and equate it to 0. 2*0.0492x-0.5549 = 0 x = 5.639228 (iii) Optimal quantity is greater than combined quantity of 5 units; hence cost synergies will be realized by economies of scale. Both target and acquirer firm move closer to optimum quantity‚ the merger will produce cost synergies. b) (i) Average cost curve as plotted in
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production costs will be unable to sell at this price. Diagram illustrating binding and non- binding price floor c) HIGHER THAN THE EQUILIBBRIUM PRICE IN ORDER TO BE EFFECTIVE. Q6. What is meant by the term “economies of scale”? How is it different from “dis-economies of scale”? What are the types of economies of scale? How this concept is reflected in the long run average cost curve (LRAC)? (20marks) a. Economies of scale- are for small levels of production of firms‚ when the average costs of output
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CHAPTER 5: COST THEORY Overview of Huxley Maquiladora Huxley Manufacturing Company‚ a large firm in the defense industry‚ is considering a strategic move to shift production from its California plant to Mexico. Tariff reductions made possible by the North American Free Trade Agreement (NAFTA) opened up the potential to enjoy significant cost savings by shifting production south of the Mexican border. Huxley is considering three options. The simplest option is to negotiate a subcontracting
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350 400 450 500 Total Cost $4 10 21 38 61 90 126 176 266 390 Price $50 50 50 50 50 50 50 50 50 50 1. (Table: Barrels of Oil) Refer to the table. How many barrels of oil should the company produce to maximize profit? A) 6 B) 7 C) 8 D) 9 2. (Table: Barrels of Oil) Refer to the table. What is the marginal revenue of producing the fifth barrel of oil? A) 61 B) 50 C) 200 D) 250 3. Stating that TR = TC is equivalent to stating that: A) MR = MC. B) P = AC. C) P = Average fixed cost. D) MR = P. Page 1
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Solutions Manual Chapter 8 Cost Curves Solutions to Review Questions 1. The long-run total cost curve plots the minimized total cost for each level of output holding input prices fixed. In other words‚ for a given set of input prices‚ the long-run total cost curve represents the total cost associated with the solution to the long-run cost minimization problem for each level of output. When the price of one input increases‚ the isocost line for a particular level of total cost will rotate in toward the
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Capital (K) Labor (L) Total Product (TP) Average Product (AP) Marginal Product (MP) 10 10 10 10 10 10 10 10 10 10 10 0 1 2 3 4 5 6 7 8 9 10 0 5 15 30 50 75 85 90 92 92 90 - - a. From the information in the table‚ calculate marginal and average products. b. Graph the three functions (put total product on one graph and marginal and average products on another). c. For what range of output does this function have diminishing marginal returns? d. At what output is average product maximized? Technical Question
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falling. C) can be less than zero. D) never equals average product. Ans: C Exhibit 3 4. (Exhibit 3: Short-Run Costs) Curve A is the _______ cost curve. A) average total B) average variable C) marginal D) total Ans: C Exhibit 4 5. (Exhibit 4: A Firm ’s Cost Curves) The curve labeled V represents the firm ’s _______ curve. A) total cost B) average total cost C) marginal cost D) average variable cost Exhibit 5 | | 6. | (Exhibit 5: The Market
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the output level at which the difference between the marginal revenue and marginal cost is greatest. This is equivalent to selecting the output where the spread between total revenue and total cost is greatest. In the short-run‚ it is possible for an individual firm to make an economic profit. This situation is shown in this diagram‚ as the price or average revenue‚ denoted by P‚ is above the average cost denoted by C . However‚ in the long period‚ economic profit cannot be sustained
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Demands of the question 10 marks (paper 2) 20 minutes on it Explain the law of diminishing returns using average and marginal product curves Definition Law of diminishing returns refer to how the marginal production of a factor of production starts to progressively decrease as the factor is increased‚ in contrast to the increase that would otherwise be normally expected. Triple A Law of diminishing returns – as more and more of a variable factor is added to a fixed factor‚ output will
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serving the entire world market‚ Brazil cannot enter the market because its average cost is higher than the world price. [pic] 3. (a) ACB1 = 15.5 - (1/2) QB DB = 10 - (1/2)p --> p = 20 - 2DB When p = AC‚ we have: 20 - 2DB = 15.5 - (1.2) QB 4.5 = 3/2 QB1 QB1 = 3 pB1 = 14 Thus‚ if ACB1 is the correct estimate of the average cost curve‚ pB1 = 14 b) When ACB2 is the correct estimate of the average cost curve‚ we have: 20 - 2DB = 15.5 - 3/5QB 2.5 = 7/5QB QB2 = 3.2 pB2
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