To grow pineapples, Tom leases 1 field for $120 a day and capital for $80 a day and hires students at $100 a day each. Suppose that Tom now leases 2 fields for $240 a day and twice as much capital for $160 a day. Table 1 shows his outputs.

1. What is Tom’s average total cost of a pinapple when he farms 2 fields and produces 220 pineapples a day?

2. Make a graph of Tom’s average total cost curves using 1 field and 2 fields.

Show on the graph Tom’s long-run average cost curve. Over what output range will Tom use 1 field? 2 fields?

3. Does Tom experience constant returns to scale, economies of scale, or diseconomies of scale?

Transcribed Image Text:

TABLE 1 Labor (students per day) 01234567 Output 2 fields (pineapples per day) Output 1 field 0 100 220 300 360 400 420 430 0 220 460 620 740 820 860 880