A waffle manufacturer named John is facing the following product function

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The price for labor is USD 500 per unit.

The price for capital is USD 125 per unit.

a) John wants to produce 400 waffles at the lowest possible cost. How much labor and capitol does he need? What will be the cost?

b) The bank is not impressed by Johns production technique. He therefore receives a loan at only

USD 1 875. How many waffles can John produce at a maximum of 1 875 USD?

c) Make a factor diagram (N, K). Note Johns adaptation from problem b) and c). Also draw the isocost lines and the substitumal line.

d) A short-term strike leads to the price of labor rising to USD 750. John still has only USD 1 875. How will John change his adaptation from c)? How many waffles does he produce now?

e) John gradually begins to make money, and wants to expand production to 650 waffles. What will be Johns new adaptation? What will be the cost?

f) John wants to keep the number of units labor down to 2 units. John still wants to produce 650 waffles. How much does John lose?

g) Given the result in 2g. What will happen to manufacturers who move far away from substitumal line?