Herongate Horses Produces Saddles (Y)using Two Inputs, Leather (Z₁)and Labour

question 14

Essay

Herongate Horses produces saddles (y)using two inputs, leather (z₁)and labour (z₂). Herongate Horses' production function is given by: F(z₁, z₂)= (1/4)z₁z₂
i)Does Herongate Horses' production function exhibit constant, increasing, or decreasing returns to scale?
ii)Graph Herongate Horses' isoquant for y = 4. Calculate the slope of the isoquant as a function of z₁ and z₂.
iii)Calculate Herongate Horses' conditional input demands for z1 and z2 as a function of y, when w₁ = 5 and
w₂ = 20.
iv)Using your answer to (iii), find Herongate Horses' total cost function. Graph the total cost function, TC(y). Find and graph the long run average cost function, LAC(y).

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Definitions:

Common Stock

A type of equity security that represents ownership in a corporation and entitles the holder to vote at shareholders' meetings.

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, leading to a reduction in per unit cost.

Issuance Size

Refers to the total amount of securities, such as bonds or stocks, that an entity offers to the public for sale.

Venture Capital

Financing for new, often high-risk ventures.