Question

RotateUP Co. is a small company that offers helicopter rides from Bellevue, Kirkland and Bothell to downtown Seattle. Due to state regulations, two able helicopter pilots must be in any commercial helicopter. Each ride takes half an hour. The company’s cost come from paying the helicopter pilots ($75 per hour) and the helicopters themselves (rental cost is $100 per hour). A) If you were to draw the isoquants for this company, would they be L-shaped, straight lines or curved lines? B) Write the cost function for this company. Explain your reasoning.

Answer 1

(a)

Every ride requires 2 pilots and 1 copter in fixed proportion, so this is a Leontief production function.

Q = min(2C, P) where Q: Number of rides, C: Number of copters and P: Number of pilots

Isoquants will be L-shaped.

(b)

Total cost (C) = Fixed cost per half-hour (rental) + Variable cost per half-hour (Pilot wages)

C = (100/2) + [(75/2) x 2 x Q]

C = 50 + 75Q