Unformatted text preview: labor and seafood as complements in a 1:1 ratio. BBB prepares a target output
function: of turf plates by using labor and “meat” as complements according to the production
( ) In turn, “meat” consists of beef ( ) and mutton ( ) combined as “perfect substitutes” where a unit of beef is perfectly
substitutable for two units of mutton.
BBB purchases/hires/leases all inputs as a price taker. Denote the price of seafood as
the labor wage rate by
price of beef by , and the price of mutton by
. In this question, assume all inputs are variable. , the (a) Write down BBB’s production function for “surf” (seafood) using labor and seafood as complements in a 1:1
ratio, characterize its returns to scale, and graph some isoquants below. Show all calculations below.
Answer
Initially
RTS: (
( )
). If we double all inputs, Now:
( ) ( ) 2 Surf and Turf refers to seafood and meat dishes. “Surf” is seafood (named for ocean surf) and “turf” is red meat (named for grass, or turf, upon
which cattle/animals graze).
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ECO 204 Chapter 12: Practice Problems & Solutions for The Long Run Cost Minimization Problem in ECO 204 (this version 20122013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. new
So it has constant returns to scale.
Drawing the isoquants: The Lshaped corners are where . S (Seafood) S=L L (Labor)
(b) Write down BBB’s production function for “turf” using labor with “meat” as complements according to ( ) characterize its returns to scale, and graph some isoquants below. Also, write down BBB’s production function for “Meat” using beef and mutton as perfect substitutes (where a unit of beef is perfectly substitutable for two
units of mutton), characterize its returns to scale, and graph some isoquants below. Show all calculations below.
Answer “Turf”
Note the inputs on the axes below
( “Meat”
Please note which input is on the axes below ) Corners will be where  or Also, consta...
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This document was uploaded on 01/19/2014.
 Fall '14

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