Besanko Solution - 5777 Words

Besanko Braeutigam – Microeconomics, 3rd edition Solutions Manual Chapter 8 Cost Curves Solutions to Review Questions 1. The long-run total cost curve plots the minimized total cost for each level of output holding input prices fixed. In other words, for a given set of input prices, the long-run total cost curve represents the total cost associated with the solution to the long-run cost minimization problem for each level of output. When the price of one input increases, the isocost line for a particular level of total cost will rotate in toward the origin. Assuming the isocost line was tangent to the isoquant for the firm’s selected level of output, when the isocost line rotates it will no longer touch the original isoquant. In†¦show more content†¦Since average fixed cost is always declining, and since average total cost is the vertical sum of average variable and average 9. Copyright  © 2008 John Wiley Sons, Inc. Chapter 8 - 2 Besanko Braeutigam – Microeconomics, 3rd edition Solutions Manual fixed costs, average total cost must also be declining at all levels of Q if average variable cost is constant. Graphically, average total cost will be declining and asymptotic to the average variable cost curve. 10. The long-run average cost curve is the envelope to the short-run average cost curves associated with each level of output. If each of these short-run average cost curves has the same minimum point, the long-run average cost curve will be a horizontal line tangent to all of these minimum points. Because the long-run average cost curve will be flat, long-run average cost is neither increasing nor decreasing, and the long-run marginal cost curve will also be flat and equal to long-run average cost. Economies of scale refer to a situation when average total cost for a single product declines as the level of output for that product increases. These economies of scale might occur, for example, because workers can specialize in tasks as the level of output increases and the wor kers’ productivity may increase. Economies of scope refer to efficiencies that arise when a firm produces more than one product. In particular, economies of scope exist if one firm producing N productsShow MoreRelatedBusiness Analysis- International Strategy and Competitive Advantages for Global Company Apple1130 Words   |  5 Pagesinto the competitive advantages of Apple Inc, which enable it to maintain competitive edge In the PC industry globally. In addition, paper briefly highlights the benefits and shortcomings of the strategies adopted by Apple Inc, giving potential solutions and strategies based on the available data. 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