Reference no: EM132154207

Suppose you are advising Verizon on how to price their mobile phone contracts. There is only one consumer in the world and her demand is Q = 10 - P , where Q is the number of minutes demanded and P is the price per minute. The marginal cost of each minute is 0.

1. (a) If you charge a price per minute, what is the optimal price?
2. (b) If you charge a price per minute of 0, which is the optimal monthly fee? Assume that Q, minutes demanded, is a continuous variable. 

Manufac Inc. produces industrial equipment using mainly Labor and Capital. It is currently using K = 1 (one unit of capital is 1000 machine-hour per day) and L = 20 (one unit of labor is 1000 man-hour per day). You estimated that its production function is Q = 100LK. The price per unit of labor is MCL = 20 ($000) and the price per unit of capital is MCK = 100 ($000).

1. (a) Is Manufac Inc. using the right mix of inputs? Should Manufac Inc. invest in more machines?
2. (b) Keeping output constant at 2000, how much labor and capital should Manufac Inc. choose?