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and output if the government requires Pepsi to behave “as if it is perfectly competitive” in spring/summer and
fall/winter? State all assumptions, show all calculations, and derive all figures up to two decimal place. 2
ECO 204 Chapter 12: Practice Problems & Solutions for The Long Run Cost Minimization Problem in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. (12.6) Billy Bob Buggins (BBB) restaurant in Sudbury Ontario specializes in “Surf and Turf cuisine”1. BBB offers customers
the choice of having surf and turf (for example, a lobster tail and steak), or just surf (for example, a lobster tail), or just
turf (for example, a steak). Letting “surf” (seafood) be good 1 and “turf” (red meat) be good 2.
BBB prepares a target output surf plates by using 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 iso-quants below. Show all calculations below.
(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 iso-quants 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
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This document was uploaded on 01/19/2014.
- Fall '14