Question 1. A producer of fixed proportion goods Beef and Leat

1. A producer of fixed proportion goods Beef and Leather (goods that are complements in production such that QB=QL – each cattle raised and slaughtered for beef yields its skin/leather as well) has marginal costs and marginal revenues of MC = 12Q, MRB=54-6QB, MRL=126-12QL. How many units of cows should be raised and slaughtered?

a.8.25

b.6

c.5.25

d.3

2.The maker of Complete Gym 1000 is coming out with a slightly different model, the Complete Gym 1100. How should the introduction of the Complete Gym 1100 affect the price charged for the Complete Gym 1000?

a.The price of the Complete Gym 1000 should rise.

b.The price of the Complete Gym 1000 should fall.

c.The price of the Complete Gym 1000 should rise or fall depending upon the demand for the two models.

d.The price of the Complete Gym 1000 should stay the same.

3. An aluminum company can produce Q units of a bauxite, a mineral used to produce aluminum, with marginal costs of MC = 9 + Q, and can create and market aluminum at a marginal cost of MC = 5 (excluding the cost of the bauxite necessary). The demand for aluminum is given by P = 30 – 1.5Q. If an external market exists where bauxite can be bought or sold for $13, how much aluminum should the firm produce?

a.5 units

b.7 units

c.4 units

d.0 units

4.A vertically integrated firm produces both rubber and automobile tires. The demand for tires is given by PT = 110 – 0.001Q and the marginal cost of producing the rubber necessary for each tire is given by MCR = 20 + 0.002Q. It costs the firm $10 to make the rubber into a tire. If there is no external market for the rubber, what transfer price should management set for the rubber?

a.$40

b.$30

c.$10

d.$60

5.Mililani Farms has 1000 acres of land it uses to grow pineapples and sugarcane on. At presents it uses 750 acres for growing pineapple and 250 acres for sugarcane. If a medical test indicated that artificial sweeteners were unhealthy and that natural pure cane sugar (sugar from sugarcane) should be used instead, Mililani Farms should

a. make no changes as this report will not affect prices.l

b.grow more sugarcane and more pineapple as the price of sugar will rise.

c.grow more sugarcane and less pineapple as the price of sugar will rise.

d.grow more pineapple and less sugarcane as the price of sugar will fall.