Assume that input prices are constant at r = 1, w = 1, with technology which consists of 5 processes having the following properties:
Process Inputs Capital
(machine hours)
Required Labor
(man hours)
Output per period
(in tons)
P1 7.5 1.0 10
P2 5.0 2.0 10
P3 3.75 3.0 10
P4 2.5 5.0 10
P5 0.0 12.0 10
A producer can purchase labor without limit, but can purchase machine-hour only up to a total of 75. Calculate
a) The producer's total and average cost of producing 100, 200, 300, 400 and 500 tons.
b) At what output levels will marginal cost change?
c) Give the marginal costs and output ranges over which each level of marginal cost is relevant.