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# Production function economic

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• ### Transcript of "Production function economic"

1. 1. Managerial Economics (GSM5000) GROUP MEMBERS: M. Mahdi Mesbahi (GM04701) Majid Asadi (GM04711)
2. 2. Questions Division 1Observations: 89 sample Division 2 Production Function Labor Fruit Instru- Total per ment bunch Cost team Cost Function
3. 3. Questions1. Estimate the following production functions: • Linear function • Double log (Cobb-Douglas function) ?2. Estimate the following total cost functions: • Quadratic Function • Cubic Function ?
4. 4. Questions3. Under a competitive market, the price is RM 100/kg, determine the functions and plot: • Revenue function • Cost function • Profit function
5. 5. Questions4. At what quantity production is profit maximized and what is the maximum profit (Competitive and Monopoly Markets)
6. 6. Production Function input output Capital & Labor Production
7. 7. Production Function Labor Fruit Instru- D.V. per ment bunch team Y X
8. 8. Production Function Total Cost 1600 Q=2000 1400 L=9 F.B=8 1200 I=7 TC=27 1000 800 Average 600 Q=252 L=84 400 F.B=77 I=5 200 TC=537 0 0 500 1000 1500 2000 2500 Total Cost
9. 9. Production Function Q=-59.808+0.627L+1.61FB+17.282I+42.017DV Ln(Q)=-0.59+0.55Ln(L)+0.68Ln(FB)+0.28Ln(I)+0.22DV SUMMARY OUTPUT LINEAR SUMMARY OUTPUT LOGArea 1: DV=1 Regression Statistics Regression Statistics R Square 0.692Q=Square 0.55FB 0.68 I0.28 0.527 R F 0.69L 23.085 F 46.542 Coefficients t Stat Coefficients t StatArea 2: DV=0 Intercept -59.808 -1.557 Intercept -0.590 -1.176 Labor per team Ln(L) 0.547 4.400Q= 0.55L 0.55 F 0.68 0.28 0.627 2.120 I Fruit bunch B 1.610 6.087 Ln(FB) 0.677 7.113 Instrument 17.282 2.440 Ln(I) 0.283 1.763 DV 42.017 1.534 DV 0.215 1.708
10. 10. Cost Function output input Cost Production
11. 11. Cost Function Q D.V. Y X
12. 12. Cost FunctionTC=211.571+2.285Q-0.003Q2+38.709DV TC=158.186+3.174Q-0.006Q2+0.000003Q3+38.709DVSUMMARY OUTPUT QUADRATIC SUMMARY OUTPUT CUBIC Area 1: D =1 V Regression Statistics Regression Statistics R Square 0.175R Square 0.169 F TC=250.28+2.28Q-0.003Q2 4.398F 5.687 Coefficients t Stat Intercept 2: DV=0 Area Coefficients t Stat 158.186 1.380Intercept 211.571 2.307 Q 3.174 2.467Q 2.285 3.843 TC=211.57+2.28Q-0.003Q 2 Q2 -0.006 -1.476Q2 -0.003 -3.257 Q3 0.000003 0.780DV 38.709 0.526 DV 36.298 0.492
13. 13. Profit FunctionTR=P.Q TR=100QArea 1: Area 2:TC=250.28+2.28Q-0.003Q2 TC=211.57+2.28Q-0.003Q2 =TR-TC =0.003Q2+97.72Q-250.28 =0.003Q2+97.72Q-211.57
14. 14. Profit Function900008000070000600005000040000300002000010000 0 0 200 400 600 800 1000 TR TC Profit
15. 15. Cost Function18001600 (400,1600)140012001000 800 (300,900) 600 400 200 (200,370) 0 (0,12) 0 200 400 600 800 1000 Total Cost Proposed TC Quad Poly. (Total Cost) Poly. (Proposed TC Quad) TC=0.0109Q2-0.39Q+12
16. 16. Cost Function18001600 (400,1600)140012001000 800 (300,900) 600 400 (200,500) 200 0 (0,12) 0 200 400 600 800 1000 Total Cost Proposed TC Cubic Poly. (Proposed TC Cubic) TC= 0.0000245Q3-0.00705Q2+2.87Q+12
17. 17. Cost FunctionTC=0.0109Q2-0.39Q+12 RMSE=1695TC= 0.0000245Q3-0.00705Q2+2.87Q+12 RMSE=3182
18. 18. New AssumptionPrice of the production under the competitivemarket is: RM 10/kg
19. 19. Functions Graph 14000 Under competitive market 12000 10000 8000 (RM) 6000 TR, TC, 4000 2000 0 477 -2000 0 200 400 600 800 1000 1200 -4000 Q (Kg) TR Proposed TC Qaud Profit
20. 20. Under competitive market1816 Profit is maximum when1412 MC=MR=P10 Profit is maximum at Q=477 kg 8 6 =Q.P-TC 4 2 =(477*10)-2305 0 =4770-2305=2465 477 0 300 600 900 MR Competition MC
21. 21. Another AssumptionDemand function under the monopoly market is:P=30-0.05Q
22. 22. Under monopoly market 35 30 Profit is maximum when 25 MC=MR 2017.5 Profit is maximum at Q=250 kg 15 10 =Q.P-TC 5 =(250*17.5)-596 0 =4770-596=3779 250 -5 0 500 1000 Demand MR Monopoly MC 3779 > 2465
23. 23. Present like Professionals Power Point Created by: Mahdi Mesbahi mahdi.mesbahi@gmail.com
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