A U.S. firm currently produces 200 units of output according to the production function q = L0.5K0.5 and faces input prices equal to wU.S. = rU.S = $11. Should the U.S. firm move their company abroad where they will face input prices equal to wabroad = $6.50 and rabroad = $15.00?
A) Yes, because the total costs will fall from $3,859 to $2,810.
B) No, because the total costs will increase from $2,810 to $3,859.
C) No, because the firm has decreasing returns to scale.
D) Not enough information is given to answer this problem.
A
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Answer the following questions true (T) or false (F)
1. Productive efficiency does not hold for a profit-maximizing, monopolistically competitive firm in the long-run equilibrium because the firm operates along the diseconomies of scale region of its average total cost curve. 2. Monopolistically competitive firms achieve allocative efficiency but not productive efficiency. 3. A monopolistic competitor does not earn profits in the long run unless it can successfully differentiate its product in the minds of its consumers.