An accounting firm has the cost function C(Qb, Qp) = BQb + Qp + Qb times Qp wher

Question

An accounting firm has the cost function C(Qb, Qp) = BQb + Qp + Qb times Qp where Qb is the number of business tax forms completed and Qp is the number of personal tax forms completed and C(Qb, Qp) is the total cost of production in thousands of dollars. Completing only business tax forms has a cost function Cb(Qb) = 6Qb, which equals C(Qb, 0), and completing only personal tax forms has a cost function Cp(Qp) = Qp, which equals C(0, Qp). True or False: There are economies of scope in the cost function of personal and business tax forms. True or False: There are economies of scale in the joint production of personal tax forms and business tax forms.

Explanation / Answer

Ans

1, True because the firm can generate money from both or any one of the products, as both are separately present in the cost function too.

2. True, because the revenue generated multiplies by doing both the jobs, hence there are economies of scale.

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