2.Pyramid Music (60 points)

The production isoquants for Pyramid Music, a small, independent West Coast recording company, are shown on page 4 of this problem set. Pyramid's primary output is CDs of new artists' music.

Assume, in answering parts (a) through (f), that Pyramid has no fixed costs.

Please work on the attached diagram (last page) and hand it in with the rest of your problem set answers.Of course, each person's work on the diagrams may be slightly different, with slightly different approximate (but numerical) answers.Correct cost curve answers will reflect the general shapes we discussed in class.

(a)In 1985 the wage rate for labor was $10/hour and machines rented for $30/hour.What was the minimum cost of producing 1000, 2000, 3000, and 4000 CDs?(10 points)

(b)By 1995, the wage rate had risen to $30/hour; machine rentals remained at $30/hour.What was the minimum cost of producing each of the four quantities from (a) in 1995? (10 points)

(c)Explain in words why it is that, although the price of labor rose by a factor of 3, the total cost of producing 1000 CDs rose by a much lower factor. (10 points)

K (machine hours/week) 450 400 350 300 250 200 \\.\\. 01001 0000 Pyramid Music, Inc. Production Isoquants 100 200 300 400 L (labor hours/week) 500