J's Hauling Service has a production function y = ML where M=truckhours and
L=labour hours. The marginal products are MPL = M
4L and MPM = L
4M.
In the short run it has a contract for 64 truck hours. Labour costs $16 per hour and trucks cost $20 per hour (or $1280 for the 64 hour contract).
a) What are its short run and long run average cost functions (average cost as a function of output)?
b) Explain the general nature of the relationship between short run and longrun average cost curves.