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A firm that produces its output in Asia and sells it in the United States has one plant in country 1 and another in country 2. Both plants have production function F(L,K) = LK. In country 1 the wage rate is W=1 and the price of capital R=1. In country 2 the rage rate is W=1 but the price of capital is R=4. In addition, in country 1 any plant that operates must pay a permit fee of $20,000 per month, while in country 2 any plant that operates must pay a permit fee of $10,000 per month. The permit fee is an avoidable fixed cost: if the plant is shut down it doesn't need to be paid. Assume for simplicity in what follows that there are no costs of shipping the product from Asia to the United States.
a) What is the cost function, marginal cost function, and average cost function for each plant?
b) What is the efficient scale and minimum average cost for each plant?
c) What is the cost function for the firm?
You are hired as a consultant to advise the Galactic Empire on this matter. Explain in words why such a price ceiling might be a good idea (i.e. could such a price ceiling be welfare-improving Consult page 372, on natural monopoly).
Widgets are supplied by a perfectly competitive market. The marginal internal cost function is given MCI(Q) = (1/2)Q. Unfortunately, production of widgets also produces pollution, which has a marginal damage to society given by MCX(Q) = Q
Pamela Sue, proprietor of Heartland Supermarket would like to raise her current sales of corn from 250 bushels per week to 500 bushels per week. Her current price of a bushel of corn is $14. Given and elasticity of demand of -2
A manufacturer of off-road vehicles is considering the purchase of dual -axis inclinometers for instalation in a new line of tractors. The distributor of the inclinometers is temporarily overstocked and is offering them at a 40% discount from the ..
The quantity demanded of Good Z depends upon the price of Z (Pz), monthly income (Y), and the price of a related Good W (Pw). Demand for Good Z (Qz) is given by equation 1 below: Qz = 150 - 8Pz + 2Y - 15Pw
Joseph starts to make quarterly deposits of $1,500 (at the end of a quarter) into an investment account at the age of 45. If he wants to have $250,000 when he retires at the age of 65, what must be the nominal and the effective interest rates per ..
A firm can manufacture a product according to the production function Q = 2(K)1/2(L)1/2 where K represents capital equipment and L is labor. The company has already spent $10,000 on the 4 units capital. a. Calculate the average product of labor
Bad Breath, Inc. Sells its output at $1 per unit into competitive markets. Bad Breath's factory is the only employer of labor in Gilroy, California. It faces a supply from competitive workers of QL = w where QL is the number of workers hired per year
Assuming the level of investment is $16 billion and independent of the level of total output, complete the following table and determine the equilibrium levels of output and employment in this private closed economy. What are the sizes of the MPC ..
When watching television after dinner, you suffer memory loss. You can not remember what demonstrate you just watched or what you ate for dinner.
Firm z, operating in a perfectly competitive market, can sell as much or as little as it wants of a good at a price of $16 per unit. Its cost function is C = 50 + 4Q +2Q^2. The associated marginal cost is MC = 4 +4Q, and the point of minimum avera..
a road improvement project requires an initial investment of $9 million. Annual maintenance and repairs will be $50,000 for the first 10 years, and $75,000 for the final 15 years. In addition, the road will require $250,000 worth of resurfacing
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