5. (30 marks) A bicycle is assembled out of bicycle frame and two wheels. A) Write...

A bicycle is assembled out of bicycle frame and two wheels.

A) Write down a production function of a firm that produces bicycles out of frames and wheels. The firm requires no assembly, so labour is not an input in this case. Sketch the isoquant that shows all combinations of frames and wheels that result in producing 100 bicycles.

B) Suppose that initially the price of a frame is 400 dollars and price of a wheel is 50 dollars. On the graph you drew for part (a), show the choices of frames and wheels that minimize the cost of producing 100 bicycles, and draw the isocost line through the optimal basket.

C) Repeat the part if the price of a frame rises to 500 dollars, while the price of a wheel remains 50 dollars.

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Expert Solution

Rahul Sunny answered 1 year ago

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