MT04 - John Riley Econ 106P Pricing and Strategy Midterm...

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John Riley Econ 106P Pricing and Strategy Midterm Fall 2004 revised 2008 This is an open book exam. The only restrictions are that you must do everything on your own and stay in the Computer Classroom. Please attempt parts (a)-(d) of each question. If you have extra time continue to the other parts of question 1. 1. Production planning Each of two products uses machine time, assembly time and finishing time. Unit time inputs are given below Output 1 output 2 total time available machine time input 1 1 2 16 assembly time input 2 3 3 30 Finishing time input 3 3 1 24 The feasible set of outputs is depicted below. The price of commodity 1 is 120 and the price of commodity 2 is 60. (a) Explain why the optimal production plan is (7,3). (b) What is the range of prices of commodity 1 for which the optimal production plan does not change? (c) What are the shadow prices? (d) If the market price of a unit of input 2 (assembly time) is 15, should the firm purchase additional assembly time or sell some of its assembly time? Explain.
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MT04 - John Riley Econ 106P Pricing and Strategy Midterm...

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