2. Spectral provides internet services in Winnebago. The production function for Spectral is given by the following: Q=f(L,K)=L0.6K04 where L represents man-hours, K represents machine hours and output Q is measured in households served. The price of an hour of labor is $6 and the price of an hour of machine time is $4. a) Given the input prices and the production function set up the cost minimization problem. Solve the cost minimization problem to determine the (compensated) factor demands for labor and machines. Find the variable cost function. Assume for the remainder of the question that the fixed costs of Spectral are $250. b) Given the fixed costs what are the average costs of Spectral? What is the marginal cost curve of Spectral. Illustrate the two cost curves in the diagram. c) For what values of Q do Spectral's cost curves exhibit "scale" economies?
2. Spectral provides internet services in Winnebago. The production function for Spectral is given by the following: Q=f(L,K)=L0.6K04 where L represents man-hours, K represents machine hours and output Q is measured in households served. The price of an hour of labor is $6 and the price of an hour of machine time is $4. a) Given the input prices and the production function set up the cost minimization problem. Solve the cost minimization problem to determine the (compensated) factor demands for labor and machines. Find the variable cost function. Assume for the remainder of the question that the fixed costs of Spectral are $250. b) Given the fixed costs what are the average costs of Spectral? What is the marginal cost curve of Spectral. Illustrate the two cost curves in the diagram. c) For what values of Q do Spectral's cost curves exhibit "scale" economies?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:2. Spectral provides internet services in Winnebago. The production function for Spectral
is given by the following: Q=f(L,K) = L0.6K0.4 where L represents man-hours, K
represents machine hours and output Q is measured in households served. The price of an
hour of labor is $6 and the price of an hour of machine time is $4.
a) Given the input prices and the production function set up the cost minimization
problem. Solve the cost minimization problem to determine the (compensated)
factor demands for labor and machines. Find the variable cost function.
Assume for the remainder of the question that the fixed costs of Spectral are $250.
b) Given the fixed costs what are the average costs of Spectral? What is the marginal
cost curve of Spectral. Illustrate the two cost curves in the diagram.
c) For what values of Q do Spectral's cost curves exhibit "scale" economies?
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