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

Answer rating: 100% (QA)

a The isoquant for BTU production can be represented graphically as a downwardsloping curve The vertical axis represents the quantity of BTUs produced ... View the full answer