monopoly-question-from-review-lecture-revised

monopoly-question-from-review-lecture-revised - Bill the...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Bill the Inventor came up with the next great thing: a solar powered hula-hoop (SPHH). He patented his invention so that nobody else could produce it for the next 30 years. a. Bill figured that it will take 1/2 an hour of labor and 5 minutes with the plastic molding machine to produce each SPHH. To house the machines and the employees, Bill rented a warehouse for which the yearly lease is $200. If the hourly wage of labor is $20 and an hour of the plastic molding machine costs $60, what is the cost function for producing SPHHs? The production technology described in the question is a fixed proportions technology, given by Q=min(2L, 12K), where L are hours of labor and K are hours of machine. The isoquants for producing Q=1 and Q=2 are given in the following graph: 0 5 10 15 20 25 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 L (hours) K (minutes) q=1 q=2 The minimal variable cost of production for one unit is VC(1)=20/2+60/12=15. For two units it is VC(2)=20+60/6=30, etc… The cost function is then the fixed cost of
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/13/2009 for the course ECON 181 taught by Professor Kasa during the Spring '07 term at Berkeley.

Page1 / 3

monopoly-question-from-review-lecture-revised - Bill the...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online