11. One Guy\'s short-run cost function is: C(q, K) = + 0.25K, where q is the num
ID: 1156459 • Letter: 1
Question
11. One Guy's short-run cost function is: C(q, K) = + 0.25K, where q is the number of pizzas produced and K is the number of ovens. Currently, One Guy's is leasing 4 ovens in the short run. Calculate the average cost of producing 10 pizzas. The manager of One Guy's is considering leasing 5 additional ovens. If One Guy's adds 5 more ovens, what is the average total cost of producing 10 pizzas?
12. Bubba Burgers has discovered there are economies of scope available to the restaurant. Which is most likely to be a response to this discovery?
A) Bubba adds more varied inputs to burger production.
B) Bubba expands burger production, focusing on that one good.
C) Bubba contracts burger production.
D) Bubba adds grilled chicken sandwiches to the menu.
E) Bubba cuts back on the diversity of the menu.
(Please provide the reason why you pick that option why not other options)
Explanation / Answer
(11)
Total cost = C(q, k) = 0.25K
When K = 4,
C(q, 4) = 0.25 x 4 = 1
Average cost (AC) = C(q, K) / q = 1/10 = 0.1
When K = 4 + 5 = 9,
C(q, 9) = 0.25 x 9 = 2.25
Average cost (AC) = C(q, K) / q = 2.25/10 = 0.225
(12) Option (D)
Economies of scope means that total cost of producing multiple goods produced together is lower than the total cost of producing individual goods produced individually. So, when Bubba adds grilled chicken sandwich to the menu, total cost of producing burgers and grilled chicken sandwich in the same restaurant will be lower than if they were being produced individually.
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