Chapter Exercises

6.19Economies of scope imply that cost complementarities exist,but cost complementarities do not imply the existence of economies of scope. Do you agree with this statement? If not,then why not? 6.20Explain the difference between economies of scope and cost complementarities. 6.21Provide examples of economies of scope and cost complementarities other than those given in the text.

CHAPTER EXERCISES

6.1The total cost equation of a firm is given by the equation

where TC is total cost and Q is the level of output. a.What is the firm’s total fixed cost? b.What is the equation for the firm’s total variable cost (TVC)? c.What is the equation for the firm’s average total cost (ATC)? d.What is the equation for the firm’s marginal cost (MC)? 6.2Suppose that a firm’s total cost equation is

where TC is total cost and Q is the level of output. a.What output level will minimize the firm’s average total cost? b.Calculate the average and marginal cost at the average cost minimizing output level. 6.3Suppose that a firm’s total cost equation is

a.Determine the output level that minimizes average total cost. b.Calculate average total cost and marginal cost at the level of output that will minimize average total cost. 6.4The long-run average total cost equation for a perfectly competitive firm is

a.Determine the minimum efficient scale of production. b.Calculate total cost at the minimum efficient scale of production. c.If the total level of output in the industry is 50,000 units,how many firms can profitably operate in this industry? 6.5The total cost equation for a firm producing two products is TCQ Q Q Q QQ 1 2 1

2

2, ( ) 2 25 4 5 = + + + 1 2

TC Q Q Q = + - + 5000 2000 10 0252 3 , , .

TC Q Q = + + 10000 100 025 , . 2

TC Q Q = + + 125000 100 05 , . 2

LRATC Q Q = - +620 5 0025 . 2