Intermediate Microeconomics · free preview
Returns to Scale and Cost
The technology's scale arithmetic stamps the cost function's shape, constant returns delivering flat average cost, increasing returns falling, decreasing rising, and a competitive CRS industry pins price to average cost with only one scale consistent with positive profit.
1. Scale stamps cost
Scale stamps cost
2. The zero-profit scaling argument
The zero-profit scaling argument
3. Scale and industry structure
Scale and industry structure
4. A worked pass
A worked pass
5. CRS and average cost
Under constant returns to scale, what does long-run average cost look like?
6. The scaling argument
A CRS competitive firm faces price above average cost. What is wrong?
7. Structure from scale
What market structure do increasing returns over the whole range imply?
8. DRS rescues supply
Why does a strictly decreasing-returns technology give a well-defined supply curve?
9. The DRS cost growth
For exponents 0.3 and 0.3, cost grows like y to the power 1 over 0.6. Compute that exponent 1 over 0.6, and write it to two decimals.
10. Doubling under CRS
Under the worked CRS cost c of y equals 12y, compute the cost of output 24, and write the number.
11. A thicker exponent sum
For exponents 0.4 and 0.4, cost grows like y to what power?
12. The long-run price under CRS
A CRS industry has cost c of y equals 12y. Where must the long-run price settle?
13. Rising average cost read
For exponents 0.3 and 0.3, cost grows like y to the 1.67. What does average cost do?
14. Flat at every scale
Under the worked CRS cost c of y equals 12y, what is average cost at y of 40?
15. Cost exponent at sum 0.8
For an exponent sum of 0.8, compute the cost exponent 1 over 0.8, and write the number with two decimals.
16. Cost exponent at sum 0.5
For an exponent sum of 0.5, compute the cost exponent 1 over 0.5, and write the number.
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