Question

Suppose that the only costs involved in car production are the cost of robots, the cost of hiring workers and the

cost of raw materials.

Raw materials (steel, glass, rubber, textiles) cost $2,000 per car.

Robots have an annualized cost of $1,000,000 per year (interest, maintenance, and depreciation) and each worker is paid an annual salary of $40,000 per year.

If 1 robot is purchased then each worker can produce 100 cars per year.
If 2 robots are purchased then each worker can produce 500 cars per year.

Output per worker depends only on the number of robots purchased and does not depend on how many workers are hired.

Firms can choose how many workers to hire.

In order to minimize costs in the long-run, the firm will choose 1 robot when the number of cars produced is___ per year and will choose 2 robots when the number of cars produced is___ per year.

Question 12 options:

1) less than or equal to 3,125; greater than 3,125

2) less than or equal to 6,250; greater than 6,250

3) less than or equal to 9,375; greater than 9,375

4) less than or equal to 2,083; greater than 2,083

5) less than or equal to 4,000; greater than 4,000

Please explain with detail. Thanks in advance.

Answer 1

1x107 TC1 TC2 -9000000- -8000000 7000000 Output -4000 3500 2500 3000 Total Cost

firm Total osi of tn Wses 400p 1o o0 O O0 + 200O Q + I Robot : TG 00 + 24O O E 1oooO 80 2 W тC, -2 20 0 O O O0 + 20000t dda - 2000O O + 2080 Figme M+9a CSt cepicted i ane In th Long acedrding chose to mini mige cast a demamded. A he po'int uost ane eamal h whera both = TC 2 TU 20000O0 + 2080Q LOO0 OO0 + 240O a &32 0 Q 3 25 ', A - the firm wil we Q< 312 5 for for TC2 Them the firm wu > 312 5 TC Ond We robot if tne That a Y 3125. robots if 2 omd a < 31 2 5 Option n : Correct The