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The Brain Bucket Company (BBC) produces helmets for winter sports. It has production facilities in Toronto and Winnipeg. The production function for the Toronto facility is (1) where LT is the quantity of labour hired in Toronto. The production function for the Winnipeg facility is Qw VLw, (2) where Lw is the quantity of labour hired in Winnipeg. The wage rate in Winnipeg is one and the wage rate in Toronto is two. Answer the following:

The Brain Bucket Company (BBC) produces helmets for winter sports. It has production facilities in Toronto and Winnipeg. The production function for the Toronto facility is (1) where LT is the quantity of labour hired in Toronto. The production function for the Winnipeg facility is Qw VLw, (2) where Lw is the quantity of labour hired in Winnipeg. The wage rate in Winnipeg is one and the wage rate in Toronto is two. Answer the following:

Principles of Microeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter18: The Markets For The Factor Of Production
Section: Chapter Questions
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The Brain Bucket Company (BBC) produces helmets for winter sports. It has production facilities in Toronto and Winnipeg. The production function for the Toronto facility is Qr LT, (1) where LT is the quantity of labour hired in Toronto. The production function for the Winnipeg facility is VLw. (2) Qw where Lw is the quantity of labour hired in Winnipeg. The wage rate in Winnipeg is one and the wage rate in Toronto is two. Answer the following: (a) If BBC wishes to produce Q helmets at the lowest possible cost, how should it distribute production between the two cities? Use your answer to find a function showing the cost of producing Q helmets.
Transcribed Image Text:The Brain Bucket Company (BBC) produces helmets for winter sports. It has production facilities in Toronto and Winnipeg. The production function for the Toronto facility is Qr LT, (1) where LT is the quantity of labour hired in Toronto. The production function for the Winnipeg facility is VLw. (2) Qw where Lw is the quantity of labour hired in Winnipeg. The wage rate in Winnipeg is one and the wage rate in Toronto is two. Answer the following: (a) If BBC wishes to produce Q helmets at the lowest possible cost, how should it distribute production between the two cities? Use your answer to find a function showing the cost of producing Q helmets.
(b) Suppose the production function for the Toronto facility is given by QT = 2LT instead, while the production function for the Winnipeg facility remains as above. What is the cost of producing Q helmets? How should output be allocated between the two cities? Are there any situations in this case where only one facility would be used? Explain. %3|
Transcribed Image Text:(b) Suppose the production function for the Toronto facility is given by QT = 2LT instead, while the production function for the Winnipeg facility remains as above. What is the cost of producing Q helmets? How should output be allocated between the two cities? Are there any situations in this case where only one facility would be used? Explain. %3|
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