Question

Isabel runs her​ family's small pineapple processing​ plant, which takes fresh pineapples and cuts them into pineapple​ rings, spears, and chunks. The capital stock of the firm consists of three machines of various​ vintages, each of which can process the pineapples into any of the three different forms. All of the machines are in excellent​ condition, and all machines can be running at the same time.
Cost of Processing Maximum Total Capacity
per Pineapple (Pineapples) per Day
Machine 1 $ 0.10 250
Machine 2 0.25 400
Machine 3 0.50 500

(A) Assume that "cost of processing" includes all labor and materials, including the owner's wages. Assume further that Isabel's family signed a long-term contract (20 years) with a service company to keep the machines in good repair for a fixed fee of $1,825 per year, or $5 per day.
1) Derive the firm's marginal cost curve.
2) Derive the firm's total cost curve.
(B) At a price of $0.40, how many pineapples would the company process? What would total revenues, total costs, and total profits be?

Answer 1

Answer:

Check the explanation

Explanation:

                   Cost of processing/             Max. total capacity

                           pineapple ($)                   (pineapples)/day

Machine 1                    0.1                                      250

Machine 2                   0.25                                   400

Machine 3                   0.50                                   500

The long-term contract to service the machines for  $1,825 per year can be considered to be a fixed cost which is not dependent upon the quantity of output.

Therefore, marginal cost would be the cost of processing and the company would use the machine with least processing cost first till its maximum capacity is reached, followed by the other machines in order of increasing costs.