Tony's Pizza's Production Function Is Shown in the Table Above

question 160

Essay

Tony's Pizza's production function is shown in the table above. Tony hires workers at a wage rate of $50 a day and his total fixed cost is $100 for Plant 1 and $150 for Plant 2.
a) Calculate Tony's Pizza's average total costs for Plant 1. Draw the short-run average total cost curve.
b) Calculate average total costs for Plant 2. Draw the short-run average total cost curve on the same figure that you used for part a.
c) In the figure, illustrate Tony's long-run average cost curve.
d) If Tony wants to produce 34 pizzas per day, what plant size should he choose? Over what output range is it efficient to operate Plant 1?

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Definitions:

Minimum Wage

The lowest legally permissible wage that employers can pay their workers, intended to protect laborers from exploitation.

Earn Per Hour

The amount of income or wages received by an individual or paid for a specific task or job, calculated on an hourly basis.

Education

The process of facilitating learning, or the acquisition of knowledge, skills, values, beliefs, and habits through the means of teaching, training, research, or self-study.

Natural Ability

The innate talents or aptitudes that individuals possess which can influence their performance in various tasks or occupations.