Marge's Hair Salon uses 15 hair dryers to produce 10 units of output per period. Marge's short-run cost function is: C(q, K) =
+ 12K, where q is the number of units produced and K is the number of hair dryers Marge leases. Marge's long-run cost function is: C_LR (q) = 26.8q. If Marge used 4 fewer hair dryers in the short-run, would short-run average total costs increase or decrease? Does Marge's long-run cost curve exhibit increasing, constant, or decreasing returns to scale?

Question

Marge's Hair Salon uses 15 hair dryers to produce 10 units of output per period. Marge's short-run cost function is: C(q, K) =

+ 12K, where q is the number of units produced and K is the number of hair dryers Marge leases. Marge's long-run cost function is: C_LR (q) = 26.8q. If Marge used 4 fewer hair dryers in the short-run, would short-run average total costs increase or decrease? Does Marge's long-run cost curve exhibit increasing, constant, or decreasing returns to scale?

Quizplus · Accepted Answer

The Answer of Marge's Hair Salon uses 15 hair dryers to produce 10 units of output per period. Marge's short-run cost function is: C(q, K) = + 12K, where q is the number of units produced and K is the number of hair dryers Marge leases. Marge's long-run cost function is: C_LR (q) = 26.8q. If Marge used 4 fewer hair dryers in the short-run, would short-run average total costs increase or decrease? Does Marge's long-run cost curve exhibit increasing, constant, or decreasing returns to scale?

Marge's Hair Salon Uses 15 Hair Dryers to Produce 10