Question

(@) Your firm produces two products, @1 and 22. An economic consulting firm has estimated your cost function to be: C (Q1, Q2) = 100+Q102+Q12+Q22 Required: Are there economies of scope in producing 10 units of (1 and 9 units of (2? (ii) Are there cost complementarities in producing 21 and @2? (iii) Your market for @1 is not very good, and an overseas firm has offered to buy the division of your company that produces 21. What will happen to your marginal cost of producing 22 if you sell the division? (b) During the beginning of the 21st century, the growth in computer sales declined for the first time in almost two decades. As aresult, PC makers dramatically reduced their orders of computer chips from Intel and other vendors. Explain why computer manufacturers such as Dell are likely to write relatively short contracts for computer chips. |