# Questions tagged [cost]

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### What is normal capacity?

The average variable cost will generally fall as output increases from zero to the normal capacity output due to the occurrence of increasing returns. But beyond the normal capacity output average ...
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### What is the difference between the discrete choice method and the generalised cost method in transport planning?

I have been using the generalised cost method in an agent based model. The generalised cost method enables each individual agent to make a decision on what mode of transport it will take given a range ...
43 views

### Cost of debt: How to adjust YTM for the possibility of bankruptcy?

When calculating the weighted average cost of capital (WACC), it may be tempting to use the debt yield (yield to maturity, YTM) as the cost of debt. However, Berk & DeMarzo note in Chapter 12 of &...
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### WACC: forward looking vs. backward looking

I have learned from the thread "Cost of debt, taxes and WACC" that WACC is forward looking in that it disregards the interest rate on debt already taken by the firm but rather use debt's ...
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### Find cost function for given production function

I have the following production function $$f(x_1,x_2,x_3,x_4)=max\{\min\{x_1, x_2), x_3+2x_4\}\}\ge q$$ And I want to find the cost function. What I think (1) $P_1+P_2 <P_3$ and $P_3/P_4<1/2$ ...
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### Short Run vs Long Run Cost Functions

Let $z_a$ and $z_b$ are two vectors of inputs. $z_a$ is variable in both long run and short run however $z_b$ is only variable in long run. Now let's suppose that the price of one of the inputs in ...
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1 vote
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### Why should electricity network capacity costs according to long run marginal cost pricing be paid by peak consumers only?

Electricity is distributed in a network with a max capacity $K$. Let $Y_i(t)$ be demand of person $i$ at time $t$. Then at no time $t \in [0,T]$ can $\sum_i Y_i(t) > K$ or networks breaks down. ...
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1 vote
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### Does this example involving WACC make sense?

I have encountered the following example in the context of cost of capital: A firm is considering investing into a project that has the same risk profile as the rest of the firm's projects. It may ...
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1 vote
239 views

### Vertical Marginal Cost curves

When would a marginal cost curve be vertical? I understand this happens when the marginal cost jumps, from say 0 to 100, but in such a case, I think there should be a discontinuity rather than a ...
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1 vote
52 views

### Excessive entry without fixed costs

Mankiw & Whinston (1986) show that the market may contain too many firms. The intuition is that if a firm charges a suboptimal high price, a rival has a demand curve that is "too high" and can ...
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1 vote
150 views

### Question on an argument in "The Myth of Absolute Advantage"

Brandis (1967) argues that "absolute advantage does not exist" and "that it is a logical impossibility". (See also comment, comment, reply.) My question here is very narrow and specific. I do not ...
1 vote
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### Where to start, to know the cost, in hours of work, necessary to produce one more car (or any other good)?

Let's say I want to buy a car. It costs that, so I can know that, for example, I have to work 3 months to pay for it. But does the car really needs three months of human work to be build? What is the ...
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1 vote
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### Find change in gross profit after price change

How do you solve this question? A company has 3 products. They contribute to 30%, 30% and 40% of sales respectively. They have profit margins of 15%, 30%, and 50% respectively. If the ...
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1 vote
366 views

### Curvature of Cost and Production Function

I have been trying to understand the duality theory between cost and production function. Please let me know if my following statement is correct; If the cost function $C(w,q)$ is convex in $q$, the ...
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