The economies of scale curve in Figure 4.1 can be represented algebraically in the following equation: Average
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The economies of scale curve in Figure 4.1 can be represented algebraically in the following equation:
Average costs = a + bQ + cQ2 where Q is the quantity produced by a firm and
a, b, and c are coefficients that are estimated from industry data. For example, it has been shown that the economies of scale curve for United States savings and loans is:
Average costs = 2.38 - .615A + .54A2 where A is a savings and loan’s total assets. Using this equation, what is the optimal size of a savings and loan? (Hint: Plug in different values of A and calculate average costs. The lowest possible average cost is the optimal size for a savings and loan.)
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Related Book For
Strategic Management And Competitive Advantage Concepts
ISBN: 9781292266954
6th Global Edition
Authors: Jay B. Barney, William S. Hesterly
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