One Model of a Company's Costs Is Given by the Short-Run

question 102

Essay

One model of a company's costs is given by the short-run Cobb-Douglas cost curve $C ( x ) = K x ^ { \frac { 1 } { a } } + F$ , where a is a positive constant, F is the fixed cost, and K measures the available technology.(a) What is the marginal cost function?
(b) For what values of a will C be concave downward?

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Definitions:

Bad Debts Expense

Bad debts expense represents the portion of receivables that a company estimates it will not be able to collect.

Allowance for Doubtful Accounts

An accounting provision made by companies to account for potential future bad debts, reflecting credit sales that might not be collected.

Write Off

The accounting action of declaring that an asset is no longer useful and recording its depreciation in the financial statements.

Expense Recognition Principle

An accounting principle that matches expenses with the revenues they helped to generate, recognizing expenses in the same period as the revenues.