reciprocal services Ralph is wrestling with reeiproeal serviees in a manufaeturing settingo Let q denote the units of product produced. It tums out that two intennediate "products"

or services are utilized in the production process, say, A and B. Careful study has revealed the following produetion relationships:

A= q + aB; and B= q +6A.

Thus, eaeh unit of output requires one unit of A and one unit of B; in addition, eaeh unit of A requires 6 units of B and eaeh unit of B requires a units of A.

Ralph has also estimated eost eurves for the produetion of A. the produetion of B, and final assembly. We denote these, respectively, as follows:

TCA = FA + vAA.

TCB = FB + vBB, and TCA=F+v'q, where eaeh curve is subject to the usual interpretation. Notice that the independent variable for assembly is q, while that for the other two eategories is units of service, A and B. Ralph also knows VA =15.60, vB = 44.32, and v = 100.

a] Suppose a = 6 = O. What is the marginal eost of a unit of final output?

b] Suppose a = 0 but 6 = 1110. What is the marginai eost of a unit of final output?

e] Suppose a = 1/4 and 6 = 1/10. What is the marginai eost of a unit of final output?

AppendixLO1