What levels of output will you choose to rent the machine

Reference no: EM13214382

Suppose that you hire workers to address and stamp envelopes. Each worker earns $5 per hour and produces 50 addressed, stamped envelopes per hour. You have unlimited free office space and can therefore add as many workers as you want with no fall-off in productivity. You have no expenses other than paying workers.

a.) Draw the total product, marginal product, average product, total cost, average cost, average variable cost, and marginal cost curves.

b.) Suppose, instead, that you rent a stamping machine with unlimited capacity for $10 per hour. This makes it possible for workers to increase their output to 100 addressed, stamped envelopes per hour. Draw the new total product, marginal product, average product, total cost, average cost, average variable cost, and marginal cost curves.

c.) Suppose now that you have a choice between renting the machine or not renting it. For what levels of output will you choose to rent the machine? For what levels of output would you not rent it? Suppose that in the long-run you can decide whether or not to rent it. Draw your long-run total cost and average cost curves.

Reference no: EM13214382

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