# Answer on Economics of Enterprise Question for Annette

Question #24092

Rufus (R), Otis (O), and Stella (S) are the owners of neighboring frozen yogurt stores in University

City and produce frozen yogurt cones (q). The frozen yogurt production process is fairly

standardized, so they all use the same inputs: frozen yogurt machines, M, with a rental price of $80

per machine and tubs of yogurt, Y, at price $. However, they each have their own “secret” method

for producing frozen yogurt and thus have different production functions:

a. Roughly sketch the isoquants for all three frozen yogurt stores with M on the y-axis. Label any

point on an isoquant representing an output of 60 cones of frozen yogurt.

b. If each store has 1 frozen yogurt machine in the short-run, what are their short-run cost

functions?

Now, assume that tubs of yogurt cost $5 each (the rental price of machines is still $80) and they are

in the long run so Rufus, Otis, and Stella can all vary the number of frozen-yog

City and produce frozen yogurt cones (q). The frozen yogurt production process is fairly

standardized, so they all use the same inputs: frozen yogurt machines, M, with a rental price of $80

per machine and tubs of yogurt, Y, at price $. However, they each have their own “secret” method

for producing frozen yogurt and thus have different production functions:

a. Roughly sketch the isoquants for all three frozen yogurt stores with M on the y-axis. Label any

point on an isoquant representing an output of 60 cones of frozen yogurt.

b. If each store has 1 frozen yogurt machine in the short-run, what are their short-run cost

functions?

Now, assume that tubs of yogurt cost $5 each (the rental price of machines is still $80) and they are

in the long run so Rufus, Otis, and Stella can all vary the number of frozen-yog

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