A rm manufactures quad bikes (\"quads\"). Each quad is made using one frame (x 1) and four wheels (x 2). Each frame costs 10 and each wheel costs 4. The output of the rm can hence be represented by the function _ 1 mln [x1, 3x2 (Hint: this is similar to working with min [R3 EL], but instead of considering prices r and w you may consider prices p1 and p2 for the inputs) a) b) d) What is an isoquant? Show the isoquants for producing two quads, three quads and seven quads. Derive the input demands for frames and wheels for the rm. How do they de- pend on the input prices? What is the maximum number of quads the rm can produce if the number of wheels is xed at 12? Assume that the rm is produc- ing the maximum number of quads. What is the marginal product of adding an extra frame? Dene the rm's cost function and derive it. Assume that each wheel costs 4 and each frame costs 10. What is the cost of producing 7 quads? Assume that the rm needs to pay 50 per day to rent the factory to produce quads (this is a xed cost). Continue to assume that each wheel costs 4 and each frame costs 10. Suppose that the rm can only produce 10 quads per day and the rent has already been paid for today. If the price at which the rm can sell quads is 30 should the rm produce today? Explain your reasoning. Continue to assume that the daily rent is 50, each wheel costs 4 and each frame costs 10. Suppose that the rm can only produce 10 quads per day and the rent can be stopped (so the cost of producing zero quads is zero). If the price at which the rm can sell quads is 30 should the rm produce today? Explain your reasoning. |