Question: 2 a firm finds that at an output level of...
2. A firm finds that at an output level of 10 units, its total
cost is $150. When the firm increases its scale of production to
produce 11 units, its total cost is $156.
a) Read Application 2.7 on measuring economies of scale (p. 39) in Waldman & Jensen, and then calculate the value of S for this firm at 11 units of output.
b) Are there economies of scale at 11 units of output? Explain your reasoning.
c) Explain another way (different from b.) you could have used to determine whether or not there are economies of scale at 11 units of output.
3. Do Hilton and Motel 6 operate in the same market? Discuss.
4. A typical firm in Industry X has the following total cost function:
TC(q) = 80 + q2+50q
where q represents the units of output.
Show all your work for full credit.
a) What is the marginal cost function a typical firm in this industry faces?
b) What is the fixed cost of a typical firm in this industry when it producers 20 units of output.
c) What is the variable cost of a typical firm in this industry when it produces 20 units of output.
d) What is the equation for average total cost (ATC)?
e) What is average total cost when the firm produces 40 units of output?
f) ATC reaches its minimum value at how many units of output?
g) Are there economies of scale at 10 units of output? Explain your reasoning.