Consider a firm with one output and two possible choices of capital stock, 1 and 2. The associated cost functions are and . Before choosing its capital stock, the firm's cost function is
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2 marksMicroeconomicsCosts of productionLong-run cost, economies and diseconomies of scaleModerateabout 3 min
DSE 2008 Question 40: Costs of production
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Consider a firm with one output and two possible choices of capital stock, 1 and 2. The associated cost functions are C(x,1)=2+2x and C(x,2)=4+x. Before choosing its capital stock, the firm's cost function is (A) C*(x)=2+2x if x∈[0,2], and 4+x if x>2 (B) C*(x)=2+2x (C) C*(x)=4+x (D) C*(x)=4+x if x∈[0,2], and 2+2x if x>2
Costs of production has come up 83 times in 7 exams since 2006.
What this question tests
This question is on Long-run cost, economies and diseconomies of scale, part of Costs of production in Microeconomics.
The long-run average cost curve as an envelope, its U-shape and the minimum efficient scale.
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Question from the DSE 2008 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.