Question

A fast food restaurant currently pays $5 per hour for servers and $50 per hour to rent ovens and other kitchen machinery. The restaurant is using the amount of machinery and labor such that MPk/MP-12. Is the restaurant minimizing its cost of production? Show your work. 2. 3. Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market is highly competitive, with boxes currently selling for $100 per thousand. Conigan's total and marginal cost curves are: TC-3,000,000+0.001Q2 MC 0.002Q where Qis measured in thousand box bundles per year. a. Calculate Conigan's profit maximizing quantity. Is the firm earning a profit? b. Analyze Conigan's position in terms of the shutdown condition. Should Conigan operate or shut down in the short run? 2 Price (dollars per wnit of MC ATC output) PMR AVC Output a. If a firm has the above cost structure and give P, should the firm continue to produce? b. When the firm produces the loss-minimizing level of output, it can recover

A fast food restaurant currently pays $5 per hour for servers and $50 per hour to rent ovens and other kitchen machinery. The restaurant is using the amount of machinery and labor such that MPk/MP-12. Is the restaurant minimizing its cost of production? Show your work. 2. 3. Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market is highly competitive, with boxes currently selling for $100 per thousand. Conigan's total and marginal cost curves are: TC-3,000,000+0.001Q2 MC 0.002Q where Qis measured in thousand box bundles per year. a. Calculate Conigan's profit maximizing quantity. Is the firm earning a profit? b. Analyze Conigan's position in terms of the shutdown condition. Should Conigan operate or shut down in the short run? 2 Price (dollars per wnit of MC ATC output) PMR AVC Output a. If a firm has the above cost structure and give P, should the firm continue to produce? b. When the firm produces the loss-minimizing level of output, it can recover

Answer 1

2. Wage , w= $5 per hour

Rent , r = $50

MP_K/MP_L = 12 (given)

The cost minimizing condition is when MP_K/ MP_L = r/w .

Here , r/w = 50/5 = 10 .

Because MPk/ MPL > r/w , this means that No, the restaurant is currently not minimizing the cost of production. So, to minimize the cost of production , the restaurant should hire less labor and rent more ovens and other machinery , as result MPL would increase and MPK would decreases, and it would reach at the cost minimizing level of production where MPK/MPL = r/w.