Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 36, Problem 2.4P
To determine
Identify the difference-in-difference method to estimation.
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Paccar Winch makes winch components for its different product lines. The firm operates its production facility three hundred and five days per year. It has orders for about twelve thousand winch components per year and has the capability of producing one hundred and five per day. Setting up the winch production costs fifty five dollars. The cost of each winch component is one dollar and ten cents. The holding cost is fifteen cents per winch component per year.
a) What is the optimal size of the production run?
b) What is the average holding cost per year?
c) What is the average setup cost per year?
d) What is the total cost per year, including the cost of the winch components?
Q). Shown below are two alternative Cobb-Douglas production functions where Q is output per day, L is labor hours per day, and K is machine hours per day.
Q = 2LK Production Method 1
Q = 10(L1/2K1/2) Production Method 2
A firm must adopt one of the two production methods in order to produce 200 units of output per day while paying employees $12 per hour and renting machinery for $48 per hour.
(a) Determine the cost minimizing combination of labor and capital if the firm decides to adopt production method 1.
(b) Determine the cost minimizing combination of labor and capital if the firm decides to adopt production method 2.
(c) Based on your solution in part (a) and (b), which production method would you recommend to the firm? Support your recommendation with calculations.
CAFE (company average fuel economies) standards stipulate the avenge fuel efficiency (miles per gallon) of can produced by each manufacturer. That is, the average fuel efficiency of can sold by GM, Ford, Chrysler, Toyota, and so forth must be at least equal to the standard set by the government. Explain why such a system introduces both inefficiencies and inequities among different automobile manufacturers.
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Principles of Economics (12th Edition)
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