Cluster Question Prompt Consider corporations that use advertising firms to develop marketing campaigns. Corporations can choose to cluster around the single advertising firm to take advantage of localization economies. Each corporation buys one campaign per year from the advertising firm. The cost per campaign is decreasing with the number of corporations in the cluster and is equal to $1000/N for each corporation, where N = number of corporations in the cluster. When corporations cluster, labor costs for the corporations increase. The cost of labor = $10N for each corporation. The corporation only has campaign and labor costs and it's total revenue is equal to $800 and is fixed. Use this information to answer the questions below.

Cluster Question Prompt Consider corporations that use advertising firms to develop marketing campaigns. Corporations can choose to cluster around the single advertising firm to take advantage of localization economies. Each corporation buys one campaign per year from the advertising firm. The cost per campaign is decreasing with the number of corporations in the cluster and is equal to $1000/N for each corporation, where N = number of corporations in the cluster. When corporations cluster, labor costs for the corporations increase. The cost of labor = $10N for each corporation. The corporation only has campaign and labor costs and it's total revenue is equal to $800 and is fixed. Use this information to answer the questions below.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 17.6IP

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The following table shows estimates of Cobb-Douglas production function parameters for several industries. Industry Capital Elasticity Production Worker Elasticity Nonproduction Worker Elasticity Sum of Elasticities (β1β1) (β2β2) (β3β3) (β1+β2+β3β1+β2+β3) Food and beverages 0.555 0.439 0.076 1.07 Textiles 0.121 0.549 0.335 1.004 Furniture 0.205 0.802 0.103 1.109 Petroleum 0.308 0.546 0.093 0.947 Stone, clay, etc. 0.632 0.032 0.366 1.029 Primary metals 0.371 0.077 0.509 0.958 Source: John R. Moroney, “Cobb-Douglas Production Functions and Returns to Scale in U.S. Manufacturing Industry,” Western Economic Journal 6, no. 1 (December 1967): Table 1, p. 46. Which of the following industries appear to exhibit decreasing returns to scale? Check all that apply. Textiles Primary metals Petroleum Food and beverages Which industry comes closest to exhibiting constant returns to scale? Primary metals…
True/False Marginal cost is the addition to the total cost when more unit of output is being produced.
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