Suppose the cost function of firm A, which produces two goods, is given by C = 100 − .5 Q1Q2 + (Q1)2 + (Q2)2 The firm wishes to produce 5 units of good 1 and 4 units of good 2. 1. Do cost complementarities exist? Do economies of scope exist? 2. Firm A is considering selling the subsidiary that produces good 2 to firm B, in which case it will produce only good 1. What will happen to firm A’s costs if it continues to produce 5 units of good 1?
Suppose the cost function of firm A, which produces two goods, is given by C = 100 − .5 Q1Q2 + (Q1)2 + (Q2)2 The firm wishes to produce 5 units of good 1 and 4 units of good 2. 1. Do cost complementarities exist? Do economies of scope exist? 2. Firm A is considering selling the subsidiary that produces good 2 to firm B, in which case it will produce only good 1. What will happen to firm A’s costs if it continues to produce 5 units of good 1?
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
ChapterB: Differential Calculus Techniques In Management
Section: Chapter Questions
Problem 5E
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Suppose the cost function of firm A, which produces two goods, is given by C = 100 − .5 Q1Q2 + (Q1)2 + (Q2)2
The firm wishes to produce 5 units of good 1 and 4 units of good 2.
1. Do cost complementarities exist? Do economies of scope exist?
2. Firm A is considering selling the subsidiary that produces good 2 to firm B, in which case it will produce only good 1. What will happen to firm A’s costs if it continues to produce 5 units of good 1?
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