1. Imagine you have some workers and some handheld computers that you can use to take inventory at a warehouse. There are diminishing returns to taking inventory. If one worker uses one computer, eh can inventory 100 items per hour. Two workers sharing a computer can together inventory 150 items per hour. Computers cost $100 each and you must pay each worker $25 per hour. If you assign one worker per computer. What is the cost of inventorying a single item? What if you assign two workers per computer? Three? How many workers per computer should you assign if you wish to minimize the cost of inventorying a single item?
2. There are economies of scale in ranching, especially with regard to fencing land. Suppose that barbed-wire fencing costs $10,000 per mile to set up. How much would it cost to fence a single property whose area is one square mile if that property also happens to be perfectly square, with sides that each one mile long? How much would it cost to fence exactly four such properties which together would contain four square miles of area? Now, consider how much it would cost to fence in four square miles of ranch land if, instead, it comes as a single large square that is two miles long on each side. Which is more costly-fencing in the four, one- square- mile properties or the single four-square-mile property?