Fixing up old houses requires plumbing and carpentry. Jack (who is a jack of all trades but is a master of none) is a decent carpenter and a decent plumber, but is not particularly good at either. He can fix up two houses in a year if he does all of the carpentry and plumbing himself. His wage is $50,000 per year.
a. What is Jack’s average total cost of fixing up two old houses?
b. George is an excellent plumber and Harriet is an excellent carpenter. George can do all of the plumbing and Harriet can do all of the carpentry to fix up five houses per year. Each earns a wage of $50,000 per year. If George and Harriet work together and fix up five old houses each year, what is their average cost?
c. What does this problem tell you about one of the sources of economies of scale?