4. Pot & Gold Inc. makes and sells Christmas ornaments in a perfectly competitive market. Its production function is given by f(x,z) = √√x + z, where x denotes the amount of plastic and z denotes the amount of wood. The price of plastic is w₁ and the price of wood is w2. Let y denote the amount of Christmas ornaments produced and p denote the price of Christmas ornaments (p > 0).
4. Pot & Gold Inc. makes and sells Christmas ornaments in a perfectly competitive market. Its production function is given by f(x,z) = √√x + z, where x denotes the amount of plastic and z denotes the amount of wood. The price of plastic is w₁ and the price of wood is w2. Let y denote the amount of Christmas ornaments produced and p denote the price of Christmas ornaments (p > 0).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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a) Calculate the technical rate of subsitution
b) Derive the cost function c(w1,w2,y)
c) When w1 = 5 and w2 = 8, calculate the average cost AC(y) and the marginal cost MC(y). For y > 0, which one is larger, AC(y) or MC(y)?
d) When w1 = 8 and w2 = 9, derive the supply function y(p)
e) Suppose that Pot & Gold Inc has to pay a quasi fixed cost of $50. When w1 = 8 and w2 = 9, derive the supply function y(p) for Pot & Gold Inc
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