Exercises

Chapter 2
About cost functions

Ex. 1
Assume a cost function C=100+ 4 q+ 4 q 2.
a) Find the average cost function (AC) and the Marginal cost function (MC)
b) Is there a range of production where there are economies of scale?
c) At what level of production are economies of scale exhausted?

Ex. 2
Assume the following cost function for a single-product firm:

C ( q )=50+ 0.5 q for q <7

C ( q )=7 q for q ≥ 7

a) Find the average and marginal cost functions (AC and MC) for q <7
b) What are the average and marginal costs for quantities grater than 7?

Ex. 3
In Exercise 2, is there a minimum efficient scale of production? If yes, which one?

Ex. 4
Assume the demand curve P=84−0.5 q.
Using the information from previous questions, find the maximum number of firms with efficient
size that the sector can handle.