Answer to Question #94652 in Macroeconomics for KB

Question #94652

Suppose in a region each household produces either 1 pair of shoes or 1 gallon of milk per hour. One mile of round-trip travel takes 12 min. A firm produces shoes. The firm faces CRS in production and charges competitive price.
a. What is the slope of net price curve?
b. The market radius of the firm is 4 miles. What is the firm’s average cost of producing shoes?

Expert's answer

a. The slope of net price curve is 12/60 = 1/5.

b. If the market radius of the firm is 4 miles, then the firm’s average cost of producing shoefs is 1/4.