Question 1: The Miller Company uses skilled and unskilled labor to do a particular construction projects. The cost of doing the project depends on the number of hours of skilled labor and the number of hours of unskilled labor that are used, the relationship being:
C=4-3X1-4X2+2X1^2+3X2^2+X1X2
WHERE C IS THE COST, X1 IS THE NUMBER OF HOURS OF SKILLED LABOR, AND X2 IS THE NUMBER OF HOURS OF UNSKILLED LABOR
(a) Find the number of hours of skilled labor and the number of hours of unskilled labor that will minimize the cost of doing the project.
(b) What is the minimum cost
(c) If the Miller Company has to purchase costing 20 to do this project, will this alter the answer to part a? If so, by how much? Will this alter the answer to part b? If so, by how much?
Question 2: Calculate the price elasticity of demand for the following airline routes.
(a) On the Burbank to Oakland route airfare is initially set at $86.50 and 246,555 passengers per year. Price is lowered to $44.69 during the next year and passenger flights increase to 1,053,139.
i) What is the point price elasticity of demand on this route at the initial price?
ii) Is this elastic or inelastic demand?
iii) What does this result mean for total revenue?
(b) On the Kansas City to St Louis route airfare is initially set at $154.42 and 428,711 passengers travel per year. Price is lowered to 45.82 during the next year and passenger flights increase to 722,425.
i) What is the arc price elasticity of demand on this route?
ii) Is this elastic or inelastic demand?
iii) What does this result mean for total revenue?