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1: Cost in a Multiproduct Firm Consider three firms that produce two products with quantities denoted q1 and q2. The three distinct cost functions are:
1: Cost in a Multiproduct Firm Consider three firms that produce two products with quantities denoted q1 and q2. The three distinct cost functions are: C1(q1,q2) = 10q1 5q2 C2(q1,q2) = 6q1 q12 8q2 8q22 C3(q1,q2) = 7q1 9q2 q1q2 Do the following: Fill in the following table for each of the cost functions. (Incremental cost refers to the incremental cost of one additional unit of output.) Output Total Cost Average Cost Marginal Cost Incremental Cost q1, q2 q1, q2 q1, q2 q1, q2 100, 50 60, 50 40, 50 30, 10 30, 50 30, 70 Plot each cost function Write a paragraph describing what this exercise illustrates about cost behavior. Write paragraphs answering the following questions: What is the economic significance of nonlinearities in the cost functions? what is the economic significance of interactions in a cost function (e.g. the q1q2 term in C3(q1,q2))
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