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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.
(a) If you charge a price per minute, what is the optimal price?
(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).
(a) Is Manufac Inc. using the right mix of inputs? Should Manufac Inc. invest in more machines?
(b) Keeping output constant at 2000, how much labor and capital should Manufac Inc. choose?
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