A computer company's cost function, which relates its average cost of production AC to its cumulative out- put in thousands of computers Q and its plant size in terms of thousands of computers produced per year q (within the production range of 10,000 to 50,000 com- puters), is given by AC = 10 - 0.1Q + 0.3q a. Is there a learning-curve effect? 5. Are there economies or diseconomies of scale? 2. During its existence, the firm has produced a total of 40,000 computers and is producing 10,000 com- puters this year. Next year it plans to increase pro- duction to 12,000 computers. Will its average cost of production increase or decrease? Explain.
A computer company's cost function, which relates its average cost of production AC to its cumulative out- put in thousands of computers Q and its plant size in terms of thousands of computers produced per year q (within the production range of 10,000 to 50,000 com- puters), is given by AC = 10 - 0.1Q + 0.3q a. Is there a learning-curve effect? 5. Are there economies or diseconomies of scale? 2. During its existence, the firm has produced a total of 40,000 computers and is producing 10,000 com- puters this year. Next year it plans to increase pro- duction to 12,000 computers. Will its average cost of production increase or decrease? Explain.
Chapter11: The Firm: Production And Costs
Section: Chapter Questions
Problem 21P
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Transcribed Image Text:A computer company's cost function, which relates its
average cost of production AC to its cumulative out-
put in thousands of computers Q and its plant size in
terms of thousands of computers produced per year q
(within the production range of 10,000 to 50,000 com-
puters), is given by
AC = 10 0.1Q + 0.3q
a. Is there a learning-curve effect?
b. Are there economies or diseconomies of scale?
c. During its existence, the firm has produced a total
of 40,000 computers and is producing 10,000 com-
puters this year. Next year it plans to increase pro-
duction to 12,000 computers. Will its average cost of
production increase or decrease? Explain.
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