Suppose that Rocky’s Box Corporation is one small firm in the cardboard box industry. Rocky’s boxes are identical to those made by other firms. Assume that his corporation has short run marginal and average cost curves that have the typical shape.
A. Suppose that the wage rate that Rocky has to pay his workers rises. How will that affect the amount of output produced by Rocky and the price that he charges for his boxes? (Explain using the short-run cost curve diagram.)
B. Return to the original problem before the wage rate of Rocky’s workers increased. Suppose that Rocky hires an economist who discovers a simple costless rearrangement of his production line that allows him to produces boxes at a lower cost per box by reducing the amount of cardboard used per box. That is, less cardboard is wasted per box.
Assuming that none of the other firms discover this innovation, how will Rocky’s technological discovery affect the amount of boxes he produces and the price he charges per box? (Explain using the short-run cost curve diagram.)