Question
1. Doug wants to go into the donut business. For $500 per month he can rent a bakery (K) complete with all the equipment to
1. Doug wants to go into the donut business. For $500 per month he can rent a bakery (K) complete with all the equipment to make a dozen different kinds of donuts. He must pay unionized donut bakers a monthly salary of $400 each. He projects his production function to be Y=5KL (MPL=5K and MPK=5L), where Y is tons of donuts.
a. What is Doug's monthly long-run cost function and long-run marginal cost?
b. How many donuts does Doug need to produce in order for K=4 be the optimal level of capital?
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Managerial Economics
Authors: Paul Keat, Philip K Young, Steve Erfle
7th edition
0133020266, 978-0133020267
