Question

Costs — End of Chapter Problem Peter's Pipers produces plumbing pipe. The long-run total cost of Peter's pipes is LTC = 20,000Q – 200Q2 +Q3 where Q is measured as thousands of feet of piping. The long-run marginal cost of Peter's pipes is LMC = 20,000 – 400Q +3Q? a. Divide total cost by Q to obtain Peter's long-run average cost of producing pipe. Average cost = $ b. Exploit the relationship between LMC and LAC to find the quantity at which LAC is at a minimum. Q= 0 thousand feet of piping c. What is the lowest possible average cost at which Peter can produce pipe? Lowest possible average cost = $ per thousand feet d. Peter's Pipers will experience economies of scale when output is 100,000 feet. It will experience diseconomies of scale when output is 100,000 feet.

Answer 1

- LTC= 20,0000 - 2000² to? L co age cost = (LAC) = 20000l-2000- tas = 20000 - 2000 + ac - 67 LAL is minimum when : LAC= Lmc - 20000 - 200 e te=20000 - Youce +3a- 20old =20² do 0=29²-2000 07 (20-2000) fo, 20-20020 [Q=100] So; e = too loo thousand feet of piping Lowest posible Arerage cost is at U=10. 1. So, LAC = 20000-200 at a? - 20000 - 200 (100) + (100) = $ 100ou 1. c)

do peter's pibers will experience economies of scale when outfout is less than 100,000 feet oft will exponence diseconomies of scale where output is more than - 10,0,000 feet.