(a) Explain intuitively why a firm's average cost curves are U-shaped and why does itsaverage variable cost curve achieve its minimum at a lower level of output than the averagetotal cost curve? (b) You are given the following data on output and inputs for 10production periods:TIMEOUTPUTCAPITAL (K)LABOR (L)12251220240142232781024421214185205122062971624724216208155101421282010180814Estimate the parameters (A, a, ß ) of Cobb-Douglas production function usingthe Least-squares (OLS) regression method. [ Assume Q = AK“ L® ]. Use theestimated parameters to determine: Returns to Scale, Equations for the marginalproduct of labor and Capital. Calculate the marginal products of capital and laborfor the input combinations: K = 10, L = 25. Make a comment based on yourfindings.

Since you have asked multiple questions, we will solve the first question for you. If you want any…

(a) Explain intuitively why a firm's average cost curves are U-shaped and why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost curve? (b) You are given the following data on output and inputs for 10

(a) Explain intuitively why a firm's average cost curves are U-shaped and why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost curve? (b) You are given the following data on output and inputs for 10

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

Chapter7: Economies Of Scale And Scope

Section: Chapter Questions

Problem 5MC

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Question

(a) Explain intuitively why a firm's average cost curves are U-shaped and why does its
average variable cost curve achieve its minimum at a lower level of output than the average
total cost curve? (b) You are given the following data on output and inputs for 10
production periods:
TIME
OUTPUT
CAPITAL (K)
LABOR (L)
1
225
12
20
240
14
22
3
278
10
24
4
212
14
18
5
205
12
20
6
297
16
24
7
242
16
20
8
155
10
14
212
8
20
10
180
8
14
Estimate the parameters (A, a, ß ) of Cobb-Douglas production function using
the Least-squares (OLS) regression method. [ Assume Q = AK“ L® ]. Use the
estimated parameters to determine: Returns to Scale, Equations for the marginal
product of labor and Capital. Calculate the marginal products of capital and labor
for the input combinations: K = 10, L = 25. Make a comment based on your
findings.

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