Posted: September 16th, 2017
ECO – A firm can choose between two production technologies
A firm can choose between two production technologies for a new product line. If it installs technology 1, its yearly costs will be C1(q) = 3600 + 65q + 36q2. If it installs technology 2, they will be C2(q) = 900 + 900q + q2.
a. What is the minimum efficient scale for each technology?
b. Which would the firm prefer (purely from a cost standpoint) if it expected to sell 30 units in summer and 10 units in winter each year?
c. What if it were more optimistic about summer sales?
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