The production of bagels is a function of labor and ingredients (mostly bread flour and sugar)....

The production of bagels is a function of labor and ingredients (mostly bread flour and sugar). The estimated that the production function of the Bagel Shop is,

Q=2L+L^0.7I^0.3 ,

where L is number of workers and I is an aggregate measure of ingredients.

What is the short-run production function if ingredients are fixed at I=100?
What is the marginal product of labor (MP_L) at The Bagel Shop?
What is the average product of labor (AP_L) at The Bagel Shop?

Suppose the wage rate, w, is $15 and the cost of one unit of ingredients is $2. Currently, The Bagel Shop employs four workers (L=4).

What is the marginal cost (MC) of a bagel at The Bagel Shop?
What is the average variable cost (AVC) of a bagel at The Bagel Shop?
What is the average cost (AC) of a bagel at The Bagel Shop?
Would The Bagel Shop make a positive profit if the price of a bagel was $4.50?

Expert Solution

Rahul Sunny answered 2 years ago

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