Q1: Steel can be produced using three different methods: a. a basic process using coke that produces steel ingots ; b. continuous casting or c. an electric furnace using steel scrap. The following table lists the average cost per ton of steel for each method:

Type of cost Basic process Continuous casting Electric furnace

Materials $150 $140 $120

Labor $80 $75 $70

Capital $100 $100 $60

Energy $20 $15 $50

Other $45 $40 $25

a.Production of steel by electric furnace is a relatively new development (beginning in the late 1970s) and accounts for a growing fraction of steel sold. What is your prediction about the future production share of this method?

b.If there were a new energy crisis (causing energy prices to triple), how would this affect steel makers' choices of production?

c.Suppose the price of steel scrap is expected to fall significantly over the next five years. What effect would this have on the choice of production method?

Q2. You are a theater owner fortunate to book a summer box office hit into your single theater. You are now planning the length of its run. Your share of the film's projected box office is

R = 10 W -0.25 (W)^2, where R is in thousands of dollars and W is the number of weeks that the movie runs. The average operating cost of your theater is AC =MC = $5 thousand per week.

a.To maximize your profit, how many weeks should the movie run? What is your profit?

b.You realize that your typical movie makes an average operating profit of $1.5 thousand per week. How does this fact affect your decision in part a above if at all?