profit- maximizing output. With an input price of $0‚ MIC is $0‚ the optimum input is 8 (MVP is still above MIC but using 9 units of input violates the rule) which will produce 183 units of output. This is the maximum output possible given this production function‚ that is‚ TPP is maximum and MPP is the smallest it gets before going negative. Only at an input price of $0 can we be sure the profit maximizing point is where output is maximum. 4. How does the law of diminishing returns cause MC
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proportionately and simultaneously is in fact expansion of the scale of production. Statement: “As a firm in the long run increases the quantities of all factors employed‚ other things being equal‚ the output may rise initially at a more rapid rate than the rise of increase in inputs‚ then output may increase in the same proportion of input‚ and ultimately‚ output increases less proportionately.” Assumptions: 1. Technique of production is unchanged. 2. All units of factors are homogeneous. 3
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Cobb-Douglas production function: log Yi log 1 2 log X 2i 3 log X 3i ui where Y= Output‚ X 2 = Labour input‚ X 3 = Capital input‚ u = stochastic disturbance term. Show that 2 and 3 give output elasticities of labour and capital. [Hint: just recall the definition of the elasticity coefficient and remember that a change in the logarithm of a variable is a relative change‚ assuming the changes are rather small] (7 marks) b) To answer this question‚ you have to refer to the production function
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consultant’s recommendation to potentially outsource the manifold production line. Through our analysis you will see that the consultants have not considered the full financial impact that this outsourcing would have on the company. This is likely because the recommendation has not taken into consideration the range of costs affecting Bridgeton industries. Through our analysis it becomes clear that the decision to retain the manifold production line will be more financially beneficial to the company. We
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FINANCIAL COSTS‚ AND BENEFITS. 7 REPRESENT YOUR ANALYSIS WITH ‘COST-VOLUME-PROFIT (OR BENEFIT)’ CURVES (ALSO CALLED BREAK-EVEN ANALYSIS) FOR THESE TWO ALTERNATIVE CAPACITIES OPTIONS. FROM THIS DIAGRAM‚ SUGGEST THE OPTIONS FOR DIFFERENT RANGES OF PRODUCTION VOLUME. 9 What are the risks in each option? 11 Draw a decision tree to represent both the situations. You may assume suitable data (if needed) to complete this exercise. Finally suggest which option is the best for the Company? 12 How does the
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ECONOMIES OF SCALE Economies of scale are the cost advantages that a business can achieve by expanding the scale of production. That is‚ when long-run average costs (LRAC) fall. Overhead costs (fixed) are spread over more units produced. Overhead costs (fixed costs) are spread more when more units are produced. These lower costs are an improvement in productive efficiency and can benefit consumers in the form of lower prices. Units produced Total cost Average cost
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from internal economies come from; specialization‚ indivisibility‚ increased dimensions‚ the principle of multiples‚ by-products‚ linked processes‚ and stock economies. Specialisation is employing specialists to undertake particular tasks in the production process to make it more efficient. Both small and large firms alike would benefit from this expertise‚ but the difference to small firms may be greater. Indivisibility occurs because of modern technology that often means that machines can only
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accumulation procedures; otherwise they are unable to visualize how costs are actually collected. The details‚ however‚ are appropriately left for an advanced course. The principal pedagogical problem here is how to get across the idea of equivalent production in process costing. Some introductory texts omit this idea‚ but this strikes us as dangerous because some student is almost sure to ask what happens in a process cost system if not all the units are completed by the end of the period. If the answer
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| Capacity Strategy of Alden Products‚ Inc. | Submitted by Varsha Advani (11349) | | | | | Capacity strategy should embody a mental model of how a firm works in a given industry and geographic region. There are a series of assumptions and predictions about the log-term behaviour of markets‚ technologies‚ costs and competitor’s behaviour. Such a model would include the following factors: * Predicted growth and variability of demand for the firm’s products and services
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Besanko & Braeutigam – Microeconomics‚ 3rd edition 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
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