Explaintheeconomic meaningof any quantitative result obtained.

1 What is the minimum efficient scale of production?

2. What are economies of scale and diseconomies of scale? What factors cause these economies or diseconomies

3Explain the concept of the learning curve and its importance for a firm.

Exercise 1

The St. Thomas Winery plans to open a new production facility in the Napa Valley of California.Based on information provided by the accounting department, the company estimates fixed costs of $250,000 per year and average variable costs of

AVC = $10 + $0.01Q

where AVC is average variable cost (in dollars) and Q is output measured in cases of output per year:

a.Estimate total cost and average total cost for the coming year at a projected volume of 4,000 cases.

b.An increase in worker productivity because of greater experience or learning during the course of the year resulted in a substantial cost saving for the company.Estimate the effect of learning on average total cost if actual total cost was $522,500 at an actual volume of 5,000 cases.