Homework Answers
(a)
| Input | Input Cost | |||||
| Output | Capital | Labor | Capital's Cost | Labor cost | Total Cost | LRAC |
| 100 | 1 | 3 | 30 | 42 | 72 | 0.72 |
| 200 | 2 | 5 | 60 | 70 | 130 | 0.65 |
| 300 | 3 | 7 | 90 | 98 | 188 | 0.63 |
| 400 | 4 | 11 | 120 | 154 | 274 | 0.69 |
| 500 | 5 | 18 | 150 | 252 | 402 | 0.80 |
| 600 | 6 | 30 | 180 | 420 | 600 | 1.00 |
Capital's cost = $30 * Units of capital
Labor's cost = $14 * Units of labor
Total cost = Capital's cost + Labor's cost
LRAC = Total Cost / Output.
(b) Increasing returns to scale occurs when LRAC decreases as the output increases.
So, increasing return to scale presents from 100 units of output to 300 units pf output.
Answer: 100 to 300
(c) At a minimum efficient scale, LRAC is minimum.
The minimum value of LRAC is 0.63 correspondings to 300 units of output.
At 300 units of output minimum, the efficient scale is achieved.
Answer: 300
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