a) Explain what is meant by the terms marginal cost and decreased cost in production theory, and give some examples that can illustrate the concepts. Explain if These terms are relevant to a for-profit company that sells one finished product in a market with a fixed market price. b) The production in a company can be described by the product function yfr () there y is number of units produced of the item, and v is the number of units of the input factor. The comp can buy the input factor at a fixed price per unit, and has no fixed costs. Anta at production is characterized by declining scale yields. Explain what it means and what which in such a case can be said of the company's marginal costs. Use charts to illustrate the scale return and the marginal cost in this case. Be careful the axis designations. 1 1 c) The product function of a company is given by v 2, where v is the number of units or 2 the input factor. The company buys the input factor at a fixed price per unit given at 5 q=. Assume further that the company has fixed costs which in their entirety are sunk costs, and whic is given by F= 100 . Show that the company's cost function is CO 20= y' + 100 . d) Take as a starting point the information given in task (c), and assume that the company can sell
a) Explain what is meant by the terms marginal cost and decreased cost in production theory, and give some examples that can illustrate the concepts. Explain if These terms are relevant to a for-profit company that sells one finished product in a market with a fixed market price. b) The production in a company can be described by the product function yfr () there y is number of units produced of the item, and v is the number of units of the input factor. The comp can buy the input factor at a fixed price per unit, and has no fixed costs. Anta at production is characterized by declining scale yields. Explain what it means and what which in such a case can be said of the company's marginal costs. Use charts to illustrate the scale return and the marginal cost in this case. Be careful the axis designations. 1 1 c) The product function of a company is given by v 2, where v is the number of units or 2 the input factor. The company buys the input factor at a fixed price per unit given at 5 q=. Assume further that the company has fixed costs which in their entirety are sunk costs, and whic is given by F= 100 . Show that the company's cost function is CO 20= y' + 100 . d) Take as a starting point the information given in task (c), and assume that the company can sell
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.9P
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Transcribed Image Text:a) Explain what is meant by the terms marginal cost and decreased cost in
production theory, and give some examples that can illustrate the concepts. Explain if
These terms are relevant to a for-profit company that sells one
finished product in a market with a fixed market price.
b) The production in a company can be described by the product function
yfr ()
there y is
number of units produced of the item, and v is the number of units of the input factor. The company
can buy the input factor at a fixed price per unit, and has no fixed costs. Anta at
production is characterized by declining scale yields. Explain what it means and what
which in such a case can be said of the company's marginal costs. Use charts to
illustrate the scale return and the marginal cost in this case. Be careful
the axis designations.
1
1
v2 , where v is the number of units of
2
c) The product function of a company
given by
the input factor. The company buys the input factor at a fixed price per unit given at 5
q=.
Assume further that the company has fixed costs which in their entirety are sunk costs, and which
is given by F= 100 . Show that the company's cost function is
C) 20=
y' + 100 .
d) Take as a starting point the information given in task (c), and assume that the company can sell
finished goods in the market at a fixed price given by = 800 .
%3D
Formulate the company's profit function, and calculate which production volume
maximizes corporate profits.
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