The next three questions refer to the following table in which columns, 1,2, and

Question

The next three questions refer to the following table in which columns, 1,2, and 3 are derived from a firm's long-run expansion path .The price of capital is S50 and the price of labor is S30 Complete and use the above table, answer ther following questions. Economies of scale exist through ------ units of output because ------- is ------. At 20 units of output LTC = dollor ----- and LAC =dollor ----- Between zero and 20 unit LMC =dollor At 40 unit of output LTC =dollor ----- and LAC = dollor ------Between 20 and 40 units LMC =dollor -----

Explanation / Answer

Formulae TC = Price of capital *units of capital + Price of labour + Units of labour = 50*8 + 30+12 = 400+360 = 760 and so on.

AC = TC/Q

MC = Change in TC/Change in quantity

a. Economies of scale exist through 20 to 40 units of ooutput because MC is decreasing.

b. LTC = 760 LAC = 38 and LMC = 38

c. LTC = 1350 LAC =33.75 LMC = 29.50

Output Capital Labour Total Cost Average Cost Maginal Cost 20 8 12 760 38 38 40 15 20 1350 33.75 29.50 60 25 35 2300 38.33 47.5 80 40 50 3500 43.75 60

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