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A Factory City. In the Yukon individuals produce and consume two
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A Factory City. In the Yukon individuals produce and consume two products,bread and hockey sticks. Everyone wants to end the five hour workday withone hockey stick and as much bread as they can get (the hockey sticks getbroken every night in the fiercely competitive hockey games). All workersare equally productive at producing bread and hockey sticks. The productionof bread is subject to constant returns to scale, with it taking one hour toproduce three loaves of bread. The production of hockey sticks is subjectto increasing returns to scale, in one hour an individual working alone canproduce one hockey stick but if the individual works with others at a factoryhe can produce five hockey sticks each hour.The factory owner provides housing at the factory for his workers, andcharges the workers five loaves of bread a day in rent, which is his averagecost in providing the housing.Individuals can travel at 10 kilometers per hour and those who live in therural area are evenly spaced out with 500 meters between each home.

(a) What might explain why those working at the factory can make morehockey sticks per hour than those working individually?

(b) If the factory owner pays his workers in loaves of bread, what is theminimum hourly wage he must pay them? This should be as a functionof P, the factory price of a hockey stick, measured in loaves of bread.

(c) What is the marginal cost of a hockey stick made at the factory, as measuredin loaves of bread? Assume that the factory workers can purchasea hockey stick at marginal cost.

(d) Assume the factory charges one loaf of bread per hockey stick (whichis not its marginal cost). Draw a figure that represents the total cost fora hockey stick (as measured in loaves of bread) as a function of whereindividuals live. Be sure to label the slope of the figure as well as itsheight at the factory.

(e) What is the furthest distance someone will travel to purchase a hockeystick at the factory?

 







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