Data for this problem is below:

Joe owns "Hammering Things", a construction sub-contracting firm that builds forms for concrete. Joe’s company only uses two inputs to production: labor and hammers. He doesn’t know his production function, but he does have data on his output. He has also noticed that when he pays his workers a higher wage, they work harder and produce more output. Suppose that the cost of a hammer is $5 and that the fixed costs are equal to $100.

1. Based on the data, what can you say about the substitutability of the inputs to production?
2. Determine the total cost function and the marginal cost of producing each output. Is Marginal cost increasing or decreasing with additional output? (Give a chart with the lowest possible cost and marginal cost for each possible level of output)
3. Suppose that Joe’s company operates in a perfectly competitive market and that the market price is $30. How much output should Joe produce and how much labor, what wage rate, and how many hammers should he use to produce it? What will his profit be?
4. Suppose instead that that market price is $15. Now how much output should Joe produce and with which outputs and wage? What will his profit be? Should Joe shut down or continue to operate?

Price: $10.73

Solution: The downloadable solution consists of 6 pages, 473 words.
Deliverable: Word Document