Question

A company produces two goods, X and Y. Production technology exhibits the following costs, where C...

A company produces two goods, X and Y. Production technology exhibits the following costs, where C (Qx, Qy) represents the cost of producing Qx units of good X and Qy units of good Y: C (0.50) = 100, C (5,0) = 150, C (0,100) = 210, C (10,0) = 320, C (5,50) = 240, and C (10,100) = 500. Respond and justify your answers to the next questions: Does this technology exhibit economies of scale? Does this technology exhibit economies of scope?

Homework Answers

Answer #1

Note that economies of scope are existing when combined production has a lower cost than producing two

goods separately. Now when QX = 0 and QY = 50, Cost is 100. When QX = 5 and QY = 0, Cost is 150. So total

cost of QX = 5, QY = 50 is 100 + 250. When combined, Cost of QX = 5, QY = 50 is 240. Now that the cost of

combined production is less than the cost of separately producing X and Y, we have economies of scope.

AC of producing 50 units of Y (with no X) = 100/50 = 2. AC of producing 100 units of Y (with no X)

= 210/100 = 2.1. AC of Y is increased with production.

AC of producing 5 units of X (with no Y) = 150/5 = 30. AC of producing 10 units of X (with no Y) = 320/10 = 32.

Hence we see that for both X and Y, increased production increases AC. This shows that there are

diseconomies of scale

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A firm produces 2 products: X and Y. The production technology displays the following costs, where...
A firm produces 2 products: X and Y. The production technology displays the following costs, where C(i,j) represents the costs of producing i units of X and the costs producing units j of Y: C(0,50)    =100                     C(5,0)        = 150 C(0,100) = 210                    C(10,0)      = 320 C(5,50)   = 240                    C(10,100) = 500 Does the production technology display Economies of Scale? Economies of Scope?
Question 1: A firm produces one good with a technology given by the production function y...
Question 1: A firm produces one good with a technology given by the production function y = f (x) = x1/3. The factor price w and the price p for the good are fixed. a) Explore whether the production function exhibits increasing returns to scale. b) Determine the cost function c) Determine the demand function for the input factor. d) How much will the firm produce?
Choiceland has 250 workers and produces only two​ goods, X and Y. Labour is the only...
Choiceland has 250 workers and produces only two​ goods, X and Y. Labour is the only factor of​ production, but some workers are better suited to producing X than Y​ (and vice​ versa). The table below shows the maximum levels of output of each good possible from various levels of labour input. Number of Workers Producing X Annual Production of X Number of Workers Producing Y Annual Production of Y 0 0 250 1300 50 20 200 1200 100 45...
production function Consider a firm that produces a single output good Y with two input goods:...
production function Consider a firm that produces a single output good Y with two input goods: labor (L) and capital (K). The firm has a technology described by the production function f : R 2 + → R+ defined by f(l, k) = √ l + √ k, where l is the quantity of labor and k is the quantity of capital. (a) In an appropriate diagram, illustrate the map of isoquants for the firm’s production function. (b) Does the...