NEED HELP ECONOMICS TUTOR Kindly answer d through e PART2 Th

NEED HELP ECONOMICS TUTOR. Kindly answer d through e (PART-2)

The production engineers at Impact Industries have derived the optimal combinations of labor and capital (the only two inputs used by Impact) for three levels of output: 120, 180, and 240 units of output:

Q           L*          K*

120        4            20

180        6            30

240        8            50

Q is the output level, L* is the optimal amount of labor to use, and K* is the optimal amount of capital to use. The price of labor is $100 per unit and the price of capital is $20 per unit.

d) Are there economies of scale over the output range 120 to 180? Explain briefly.

e) Are there diseconomies of scale over the output range 180 to 240? Explain briefly.

Solution

What is Economies of Scale- it means lowering of costs of production by way of producing in bulk.Or it is a situation in which the long run average costs of producing a good or service decrease with increase in the level of output.

What is diseconomies of scale-It is a situation in which the long run average cost of producing a good or service increase with increase in level of output .

According this table-

d) Ther is not Economies of scale Because for producing 120 unit of out put total cost is=(4X$100=$400+20X$20=$400) $800 and average cost is $ 6.67 per unit

And for producing 180 unit of output total cost (6X$100=600+30X$20=$600)= $1200 And the average cost is $ 6.67per unit

e)Yes there is diseconomies of scale over the output range 180 to 240

Because for producing 180 unit of output total cost (6X$100=$600+ 30X$20=$600)=$ 1200 and the average cost is $ 6.67.per unit

And for producing 240 unit of output total cost (8X$100=$800+ 50X$20=$1000)=$1800 and the average cost is $ 9.58 per unit.