A business owns two factories: q=sqrt(KL) for both factories r=w=1 In short run, K1=25 K2=100 Question: 1) In order to minimize production cost, how should the business allocate production between the two factories? You must explain clearly. ( For example if you believe the short run marginal cost should equal, explain why). 2) Under perfect allocation, derive SRTC, SRMC, SRAC. 3) How should the business allocate production in long run? Derive LRTC, LRMC, LRAC (Hint: Lagrangian menthod) 4) If both factories exhibits decreasing returns to scale, explain why the optimal allocation in long run is letting the MC of last unit produced equal.
A business owns two factories: q=sqrt(KL) for both factories r=w=1 In short run, K1=25 K2=100 Question: 1) In order to minimize production cost, how should the business allocate production between the two factories? You must explain clearly. ( For example if you believe the short run marginal cost should equal, explain why). 2) Under perfect allocation, derive SRTC, SRMC, SRAC. 3) How should the business allocate production in long run? Derive LRTC, LRMC, LRAC (Hint: Lagrangian menthod) 4) If both factories exhibits decreasing returns to scale, explain why the optimal allocation in long run is letting the MC of last unit produced equal.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
A business owns two factories:
q=sqrt(KL) for both factories
r=w=1
In short run,
K1=25 K2=100
Question:
1) In order to minimize production cost, how should the business allocate production between the two factories? You must explain clearly. ( For example if you believe the short run marginal cost should equal, explain why).
2) Under perfect allocation, derive SRTC, SRMC, SRAC.
3) How should the business allocate production in long run? Derive LRTC, LRMC, LRAC (Hint: Lagrangian menthod)
4) If both factories exhibits decreasing returns to scale, explain why the optimal allocation in long run is letting the MC of last unit produced equal.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education