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Robert Barber

TUTORIAL 6MONDAYJUNE 9 2014 4PM5PMQUESTION 72Suppose that the Acme Gumball Company has a fixed proportions production function that requires it to use two gumball presses and one worker to produce 1000 gumballs per houra Explain why the cost per hour of producing 1000 gumballs is 2vw where v is the hourly rent for gumball presses and w is the hourly wageb Assume Acme can produce any number of gumballs they want using this technology Explain why the cost function in this case would be TC2vwq where q is output of gumballs per hour measured in thousands of gumballs c What is the average and marginal cost of gumball production again measure output in thousands of gumballsd Graph the average and marginal cost curves for gumballs v3 w5e Now graph these curves for v6 w5 Explain why these curves have shiftedQUESTION 76Returning to the Gumball producer in Problem 72 lets look at the possibility that producing these delectable treats does not necessarily experience constant returns to scalea In Problem 72 we showed that the cost function for gumballs was given by TC2vwq where q is output of gumballs in thousands v is the rental rate for gumball presses and w is the hourly wage Explain why this cost function illustrates constant returns to scaleb Suppose instead that the gumball cost function is given by12TC2vwq Explain why this function illustrates increasing returns to scale What does the graph of the total cost curve for this function look like What do the average and marginal cost curves look like
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