A computer companys cost function, which relates its average cost of production AC to its cumulative output
Question:
AC = 10 - 0.1Q + 0.3q.
a) Is there a learning curve effect?
b) Are there economies or diseconomies of scale?
c) During its existence, the firm has produced a total of 40,000 computers and is producing 10,000 computers this year. Next year it plans to increase production to 12,000 computers. Will its average cost of production increase or decrease? Explain.
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