4. A bottling company uses two inputs to produce bottles soft drink sludge: bottling machines (K) and workers(L). The machine costs $1000 per day (r) to run and the workers are paid $200 per day (w). At the current level of production, the marginal product of the machine is an additional 200 bottles per day (MP_K), and the marginal product of labor is 50 bottles per day (MP_L).

a. State the rule for determining the cost- efficient combinations of inputs (K & L) for the production of soft drinks.

b. Given r=$1000 per day, w=$200 per day, (MP_K)= 200 bottles, and (MPL)= 50 bottles, is the company operating cost efficiently based on the above rule? If yes, why, if not why?

c. What must the company do to move toward cost efficient operation? Hint: use more labor or more machines and why?

5. In chapter 6, you have read the long-run average cost (AC) of operation may decrease for three reasons.

a. List and explain the three reasons why the average unit cost may decrease in the auto industry or any other industry over time.

b. Give an example of the learning curve for a business operation where the average costs were reduced due to cumulative production experience.

c. Suppose that the global learning curve for solar power installation in the US is at 93% according to a recent study. interpret what this learning rate implies.

d. How might the learning curve information help businesses in making operational decisions?

e.Explain the concept of economies of scope. Suppose Conner runs two kind of rafting trips. If he spends all day on a wild whitewater rafting, he can do 3 trips, or he can do 4 trips of a mellow wildlife rafting. If he does some of each, however, he can do more total trips: 2 whitewater trips and 3 wildlife trips. Conner's time is valued at $20/hour.

Finding the value for the economies of scope of Conner's rafting experience.

What can you say about his economies of scope? i.e., does Conner reduce the average cost by making some of each trip or by making each trip separately?