Re: cost doubt

Posted by Prerna Rakheja on Dec 04, 2013; 2:58pm
URL: http://discussion-forum.276.s1.nabble.com/cost-doubt-tp7584277p7584300.html

Hi Ron,

Lets assume you produce 'a' amount of the good using x and y and '1-a' amount of the good using z and p.

Note you will have to use 'a' amount of both x and y, cost = 4a + 1a = 5a
'1-a' amount of z and p, cost = 3(1-a) +2(1-a) = 5 - 5a

Total cost = 5

@ XIPP
For part (a) consider the allocation x=0, y=1, z=0, p=1. Therefore, output = min{1,1} = 1
cost = 1(1) + 2(1) = 3. Hence your allocation is not cost minimising.

I would request you to kindly provide the allocation for part (b) that leads you to an output of 1 unit while it costs 3 units.