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Question 1: The boiler in the heating plant at arctic College is designed to burn either...

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Economics

Question 1: The boiler in the heating plant at arctic College isdesigned to burn either fuel oil or coal. Suppose that one ton ofcoal, C, produces as many BTUs as 100 gallons of fuel oil, F. (a)Draw a typical isoquant for BTU production. (b) What is theelasticity of substitution between fuel oil and coal? (c) Supposethat fuel oil is $1.00 per gallon and coal is $80 per ton. Draw theoutput expansion path on the diagram and describe the marginal andaverage cost curves. (d) Repeat (c). assuming that the price ofcoal has increased to $120 per ton.

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3.8 Ratings (329 Votes)
aConsider the given problem here the 1 ton of coal produces asmany BTU as 100 gallon of fuel oil So here the productionfunction is perfect substitute types The following fig shows theisoquant for BTUbLets assume the typical production function is Q aC bF Here 1 ton of coal produces as many BTU as 100 gallon of fueloil aC bF a1 b100 ab 100 So herethe MRS of    See Answer
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