Price Theory HW5

# Price Theory HW5 - Skelton Eco 3301 Homework 5 1. Assume...

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Skelton Eco 3301 Homework 5 1. Assume that you manage a plant that mass produces engines by teams of workers using assembly machines. The technology is summarized by the production function Q = 4KL, where Q is the number of engines produced per week, K the number of assembly machines and L the number of labor teams. Each assembly machine rents for r = \$12,000 and each team costs w = \$3,000. Engine costs are given by the cost of labor teams and machines, plus \$2,000 per engine for raw materials. Your plant has a fixed installation of 10 assembly machines as part of its design. A) What is the cost function for your plant (i.e. how much will it cost to produce Q engines?)? What are average and marginal costs for producing Q engines? In general, how do average costs vary with output? B) How many teams are required in order to produce 80 engines? What is the average cost per engine? C) You are asked to make recommendations for the design of a new production facility. What would you suggest?

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## This note was uploaded on 10/02/2008 for the course ECON 3301 taught by Professor Skelton during the Spring '08 term at SMU.

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Price Theory HW5 - Skelton Eco 3301 Homework 5 1. Assume...

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