‘Litaroo’ is a leading gas company in a country where you are working as a financial analyst. Litaroo is now considering buying out Lafa, a small gas company operating at a loss. You recommend the buyout because you believe that new manager could reduce the cost of production and thereby increase the profit to an attractive level. You collected the Dependent variable: LNQ Observations: 44 R-Square 0.94 F-ratio 95.18 P-VALUE ON F 0.0001 Variable Intercept LnP LnM LnPR Parameter estimate –2.00 -1.10 2.4 -0.20 Standard error 0.40 0.44 0.60 0.05 t- ratio -5.00 –2.50 4.00 -4.00 P-value 0.0001 0.0166 0.0003 0.0003 4 following product information to show the CEO at Litaroo that Lafa is operating inefficiently. MPL = 10, PL = Rs. 20 (Price of labour) MPK = 15, PK = Rs. 15 (Price of capital) a. Explain how these data provide evidence of inefficiency. b. How could the new manager of Litaroo improve the efficiency of Lafa? iv. Graphically explain the long run production equilibrium of a firm.
