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: Cengage Learning
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Question
Chapter 7, Problem 10E
To determine
Whether the given function shows constant returns to scale or not at v=1
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How would you determine that a two-input Cobb-Douglas production function has decreasing returns to scale (DRS), increasing returns to scale (IRS) or constant returns to scale (CRS) depending on whether α1 + α2 is larger than, smaller than, or equal to one?
The chief economist for Argus Corporation, a large appliance manufacturer, estimated the firm’s short-run cost function for vacuum cleaners using an average variable cost function of the form AVC = a + bQ + cQ2 where AVC = dollars per vacuum cleaner and Q = number of vacuum cleaners produced each month. Total fixed cost each month is $180,000. The following results were obtained:
Dependent Variable
AVC
R-SQUARE
F-RATIO
P-VALUE ON F
OBSERVATIONS
19
0.7360
39.428
0.0001
PARAMETER ESTIMATE
STANDARD ERROR
T-RATIO
P-VALUE
VARIABLE INTERCEPT
191.93
54.65
3.512
0.0029
Q
-0.0305
0.00789
23.866
0.0014
Q2
0.0000024
0.00000098
2.449
0.0262
Quetsion: At what level of output will average variable cost be at a minimum? What is the minimum average variable cost?
The chief economist for Argus Corporation, a large appliance manufacturer, estimated the firm’s short-run cost function for vacuum cleaners using an average variable cost function of the form AVC = a + bQ + cQ2 where AVC = dollars per vacuum cleaner and Q = number of vacuum cleaners produced each month. Total fixed cost each month is $180,000. The following results were obtained:
DEPENDENT VARIABLE:
AVC
R-SQUARE
F-RATIO
P-VALUE ON F
OBSERVATIONS:
19
0.7360
39.428
0.0001
VARIABLE
PARAMETER
ESTIMATE
STANDARD ERROR
T-RATIO
P-VALUE
INTERCEPT
191.93
54.65
3.512
0.0029
Q
-0.0305
0.00789
23.866
0.0014
Q2
0.0000024
0.00000098
2.449
0.0262
d) If Argus Corporation produces 10,000 vacuum cleaners monthly, what is the estimated average variable cost?
Chapter 7 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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