2. At Albert's Pretzel Company, pretzels (Q) are produced using workers (L) and pretzel-making machines (K) according to the production function Q(L,K) = KL + K. The hourly cost of pretzel machines is $10, and the hourly cost of workers is $40. Where appropriate, round to 2 decimal places. a. Suppose Albert wishes to produce 10,000 pretzels at minimum cost. How many hours of machines and workers should he employ to minimize cost? How much will it cost to produce 10,000 pretzels? b. An order arrives, doubling the number of pretzels Albert must produce. Assuming he is unable to purchase more pretzel-making machines in the short-run, how much will it cost to meet the new production level? c. In the long-run, Albert will be able to employ more machines as well as workers. If he now produces 20,000 pretzels at minimum cost, how much will it cost? d. Use an optimal choice diagram (isoquants and isocost lines) to graphically illustrate your answers to (b) and (c). Use this graph to compare your long-run and short-run input levels as well as your long-run and short-run costs.
2. At Albert's Pretzel Company, pretzels (Q) are produced using workers (L) and pretzel-making machines (K) according to the production function Q(L,K) = KL + K. The hourly cost of pretzel machines is $10, and the hourly cost of workers is $40. Where appropriate, round to 2 decimal places. a. Suppose Albert wishes to produce 10,000 pretzels at minimum cost. How many hours of machines and workers should he employ to minimize cost? How much will it cost to produce 10,000 pretzels? b. An order arrives, doubling the number of pretzels Albert must produce. Assuming he is unable to purchase more pretzel-making machines in the short-run, how much will it cost to meet the new production level? c. In the long-run, Albert will be able to employ more machines as well as workers. If he now produces 20,000 pretzels at minimum cost, how much will it cost? d. Use an optimal choice diagram (isoquants and isocost lines) to graphically illustrate your answers to (b) and (c). Use this graph to compare your long-run and short-run input levels as well as your long-run and short-run costs.
Microeconomics: Principles & Policy
14th Edition
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:William J. Baumol, Alan S. Blinder, John L. Solow
Chapter7: Production, Inputs, And Cost: Building Blocks For Supply Analysis
Section: Chapter Questions
Problem 1DQ
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Transcribed Image Text:2. At Albert's Pretzel Company, pretzels (Q) are produced using workers (L) and pretzel-making
machines (K) according to the production function Q(L,K) = KL + K. The hourly cost of pretzel
machines is $10, and the hourly cost of workers is $40. Where appropriate, round to 2 decimal
places.
a. Suppose Albert wishes to produce 10,000 pretzels at minimum cost. How many hours of
machines and workers should he employ to minimize cost? How much will it cost to produce
10,000 pretzels?
b. An order arrives, doubling the number of pretzels Albert must produce. Assuming he is
unable to purchase more pretzel-making machines in the short-run, how much will it cost to
meet the new production level?
c. In the long-run, Albert will be able to employ more machines as well as workers. If he now
produces 20,000 pretzels at minimum cost, how much will it cost?
d. Use an optimal choice diagram (isoquants and isocost lines) to graphically illustrate your
answers to (b) and (c). Use this graph to compare your long-run and short-run input levels as
well as your long-run and short-run costs.
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