Suppose that the Acme Gumball Company has a fixed proportions production function that requires it to use two gumball presses and one worker to produce 1000 gumballs per hour.
a. Explain why the cost per hour of producing 1000 gumballs is 2v þ w (where v is the hourly rent for gumball presses and w is the hourly wage).
b. Assume Acme can produce any number of gumballs they want using this technology. Explain why the cost function in this case would be , where q is output of gumballs per hour, measured in thousands of gumballs.
c. What is the average and marginal cost of gumball production (again, measure output in thousands of gumballs)?
d. Graph the average and marginal cost curves for gumballs assuming v = 3, w = 5.
e. Now graph these curves for v = 6, w =5. Explain why these curves have shifted.
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