What would marginal and total costs be

Reference no: EM131824732

Question: We've claimed that the efficient way to spread out work across firms in the same industry is to set the marginal cost of production to be the same across firms. Let's see if this works in an example. Consider a competitive market for rolled steel (measured by the ton) with just two firms: SmallCo and BigCo. If we wanted to be more realistic, we could say there were 100 firms like SmallCo and 100 firms like BigCo, but that would just make the math harder without generating any insight. The two firms have marginal cost schedules like this:

a. We'll ignore the fixed costs of starting up the firms just to make things a little simpler. What is the total cost at each firm of producing each level of output? Fill in the table.

b. What's the cheapest way to make 11 tons of steel? 5 tons?

c. What would the price have to be in this competitive market for these two firms to produce a total of 11 tons of steel? 5 tons?

d. Suppose that a government agency looked at BigCo and SmallCo's cost curves. Which firm looks like the low-cost producer to a government agency? Would it be a good idea, an efficient policy, for the government to shut down the high-cost producer? In other words, could a government intervention do better than the invisible hand in this case?

e. Let's make part d more concrete: What would the total cost be if BigCo were the only firm in the market, and it had to produce 7 tons of rolled steel? What would marginal and total costs be if SmallCo and BigCo let the invisible hand divvy up the work between them?

Reference no: EM131824732

Questions Cloud

Define rate of return on capital investments : Suppose that two industries, the pizza industry and the calzone industry, are equally risky, but rates of return on capital investments are only 5% in the pizza

What is a transfer price : What is a transfer price? What role does GAAP play in how firms determine transfer prices

Develop a likelihood ratio test to test : Develop a likelihood ratio test to test H0 : µ = µ0 vs. Ha : µ = µ0 when our model is X iid ~ Norm(µ, 1).

Compute the mean and variance of a laplace : a) Compute the mean and variance of a Laplace random variable. b) Write an R function dlaplace() to compute the pdf of a Laplace random variable.

What would marginal and total costs be : Let's make part d more concrete: What would the total cost be if BigCo were the only firm in the market, and it had to produce 7 tons of rolled steel?

Determine the form of the likelihood ratio : Determine the form of the likelihood ratio test statistic assuming a sample x = x1, x2,...,xn. (You do not need to compute a p-value.)

Calculate capital turnover : Signs Unlimited has a target rate of return of 20% for each of its divisions. Calculate capital turnover (round to 2 decimal places)

Explain the restaurant chains central commissary : Explain the restaurant chain's central commissary including the products it supplies and it doesn't supply.

Confidence intervals for the mean weight of chickens : a) For each of the six feeds, compute 95% confidence intervals for the mean weight of chickens fed that feed.

User Account

All Pages