#1) A firm produces two products, X and Y. The production technology displays the following costs where C(i, j) represents the cost of producing I units of X and j units of Y: C(0, 50) = 100 C(5, 0) = 150 C(0, 100) = 210 C(10, 0) = 320 C(5, 50) = 240 C(10, 100) = 500 Does this production technology display economies of scale? #4) A firm contemplating entering the breakfast cereal market would need to invest $100 million to build a minimum efficient scale production plant (or about $10 million annually on an amortized basis). Such a plant could produce about $100 million pounds of cereal per year. What would the average fixed costs of this plant be if it ran at capacity? Each year, U.S. breakfast cereal makers sell about 3 billion pounds of cereal. What would be the average fixed costs if the cereal maker captured a 2% market share? What would be its cost disadvantage if it achieved only a 1% share? If prior to entering the market, the firm contemplates achieving only a 1% share, is it doomed to such large cost disparity? #10) Suppose that Governor Schwarzenegger (GAS) pays Besanko, Dranrove, Shanley, and Schaffer (BDS) an advance of $5 million to write the script in Incomplete Contract, a movie version of their immensely popular text on business strategy. The movie contract includes certain script requirements, including that GAS gets to play a strong, silent business strategist with superhuman analytic powers. BDS spend $100,000 worth of their time to write the script that is tailor made for the ex-Terminator (GAS). When the turn in the script, GAS claims that it fails to live up to the contractual requirement that he have several passionate love scenes, and he attempts to renegotiate. Given the ambiguity over what constitutes passion, BDS are forced to agree. What was BDS’ rent? What is their quasi-rent? What assumptions do you have to make to compute this? Could BDS have held up GAS? Explain.