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Chapter 9: Problems 3,4,5
- A study of the costs of electricity generation for a sample of 56 British firms in 1946-1947 yielded the following long-run cost function:
+ .003Q + .0000029Q^2 – .000046QZ – .026Z + .00018Z^2
where variable cost measured in pence per kilowatt-hour. (A pence was a British monetary unit equal, at that time to 2 cents U.S.)
measured in millions of kWh per year
size, measured in thousands of kilowatts
- Determine the long-run variable cost function for electricity generation.
- Determine the long-run marginal cost function for electricity generation.
- Holding plant size constant at 150,000 kilowatts, determine the short-run average variable cost and marginal cost functions for electricity generation.
- For a plant size equal to 150,000 kilowatts, determine the output level that minimizes short-run average variable costs.
- Determine the short-run average variable cost and marginal cost at the output level obtained in Part (D).
- Assuming that all other factors remain unchanged, determine how a firm’s breakeven point is affected by each of the following:
- The firm finds it necessary to reduce the price per unit because of competitive conditions in the market.
- The firm’s direct labor costs increase as a result of a new labor contract.
- The Occupational Safety and Health Administration requires the firm to install new ventilating equipment in its plant. (Assume that this action has no effect on worker product
- Cool-Aire Corporation manufactures a line of room air conditioner. Its break even sales level is 33,000 units. Sales are approximately normally distributed. Expected sales next year are 40,000 units with a standard deviation of 4,000 units.
- Determine the probability that Cool-Aire will incur an operating loss.
- Determine the probability that Cool-Aire will operate above its break-even point.
Chapter 10: Problems 2,6,10
- Television channel operating profits vary from high as 45 to 55 percent at MTV and Nickelodon down to 12 to 18 percent to NBC and ABC. Provide a Porter Five Forces analysis of each type of network. Why is MTV so profitable relative to major networks?
- Assume that a firm is a perfectly competitive industry has the following total cost schedule
Outputs (units)
Total Cost ($)
10
$110
15
$150
20
$180
25
$225
30
$300
35
$385
40
$480
- Calculate a marginal cost and an average cost schedule for the firm.
- If the prevailing marketing price is $17 per unit, how many units will be produced and sold? What are the profits per unit? What are the total profits?
- Is the industry in long-run equilibrium at this price?
- Which of the following products and services are likely to encounter adverse selection problems: golf shirts at traveling pro tournaments, certified gemstones from Tiffany’s graduation gift travel packages, or mail-order auto parts? Why or why not?