Estimates of the Industry Long-Run Average Cost of Producing a Type

question 111

Essay

Estimates of the industry long-run average cost of producing a type of plastic hook were made in 1970 and again in 1985. Estimates of these relationships are presented as:
LAC₇₀ = 10 - 0.3Q + 0.05Q²
LAC₈₅ = 8 - 0.6Q + 0.04Q²,
where Q is output in hundreds of cases per day, and LAC is average cost in dollars per unit. Assume that costs are expressed in inflation adjusted or constant dollars. From the information available, can you learn anything about economies of scope, economies of scale, and a learning curve in this industry? Explain. Do these curves reveal anything about the state of technology in this industry? Explain.

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