Suppose the cost function of firm A, which produces two goods, is given by C = 100 − .5 Q1Q2 + (Q1)2 + (Q2)2 The firm wishes to produce 5 units of good 1 and 4 units of good 2. 1. Do cost complementarities exist? Do economies of scope exist? 2. Firm A is considering selling the subsidiary that produces good 2 to firm B, in which case it will produce only good 1. What will happen to firm A’s costs if it continues to produce 5 units of good 1?

Suppose the cost function of firm A, which produces two goods, is given by C = 100 − .5 Q1Q2 + (Q1)2 + (Q2)2 The firm wishes to produce 5 units of good 1 and 4 units of good 2. 1. Do cost complementarities exist? Do economies of scope exist? 2. Firm A is considering selling the subsidiary that produces good 2 to firm B, in which case it will produce only good 1. What will happen to firm A’s costs if it continues to produce 5 units of good 1?

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter8: Production And Costs

Section8.5: Production And Costs In The Long Run

Problem 3ST

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