Answer to Question #24092 in Economics of Enterprise for Annette

Question

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

Answer 1

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