Giuseppe’s Pizza is a family-owned pizzeria. It uses 4 pizza ovens and hires lab
ID: 2495894 • Letter: G
Question
Giuseppe’s Pizza is a family-owned pizzeria. It uses 4 pizza ovens and hires labor to make and sell pizza. Giuseppe’s cost of capital is $128 per over per day and its cost of labor is $64 per worker-day. The pizzeria’s production function is:
q = 20K0.5L0.5
where q is the number of pizzas produced per day, K is the number of ovens used, and L is the number of workers employed.
(a) Find Giuseppe’s short-run production function.
(b) If Giuseppe’s employs 6 workers, what is the pizzeria’s average fixed cost?
(c) If Giuseppe’s produces 80 pizzas per day, what is the firm’s short-run average total cost?
(d) If Giuseppe’s produces 80 pizzas per day, what is the firm’s short-run average variable cost?
(e) What is Giuseppe’s short-run marginal cost of producing the 81st pizza?
Explanation / Answer
(a)q = 20K0.5L0.5
q=20(4)0.5L0.5
q=40L0.5
(b)FC=(128*4)=516
AFC=516/6=86
(c)q=40L0.5
80/40=L0.5
L=4
TC=VC+FC
=(64*4)+(512)
=256+512=768
ATC=768/4=192
(d) AVC=256/4=64
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