A company produces ceramic lemons (l). There are two technologies available to produce these lemons. Technology 1 has smaller fixed cost ($100) but costs more to produce per lemon. Technology 2 has a higher fixed($1000) but is cheaper per lemon. The (variable) cost function using technology 1 is l2 + 10l. The (variable) cost function for technology 2 is l2.

A. Derive the ATV (average total cost) and AVC (average variable cost) for each technology.

B. Derive the marginal cost (MC) for each technology. Do the technologies have increasing, decreasing or constant marginal costs?

C. Given your answer to part B, do you expect that the technologies have increasing, decreasing or constant returns to scale? (You may assume that there is only one input: clay.)

D. Show that M C = AV C at the minimum point of AV C for technology 1. E. Which technology would the firm choose if the price of ceramic lemons was 50?