Problem
Hassan's has just leased a truck for $400 a month. He will join Truber, a new platform that connects truckers to customers in the NY metro area via an app. Truber requires truckers to be available for 8 hours per day. Hassan's truck runs with either standard gasoline or ethanol-free gasoline. With ethanol-free gasoline, that sells for $2.85 per gallon, the truck gets 20 miles per gallon. With standard gasoline, that currently sells for $3 per gallon, it gets 10% higher mileage. Hassan's output is expressed in miles driven per month.
1. In your judgement, what is the most accurate specification of Hassan's production function?
2. Compute and draw Hassan's cost function.
3. Compute and draw Hassan's marginal cost function.
4. How would Hassan's cost function change if the price of ethanol-free gasoline dropped to $2.55 per gallon?