c) Instead of introducing the 20% corporate tax in part (b), the government decided to add an ad valorem input tax of 100% to input 2. What is the profit-maximizing amount of each input to use? What is the profit-maximizing output? How much is Rodrigo’s new profit? (b) The government introduces a corporate tax of 20%. What is Rodrigo's after-tax profit? How much of each input will he be usingnow? Rodrigo makes vegan ice cream. His production function for the number of ice creams he makes is1f(x₁, x₂) = 8(x² + x²)where x₁ is the amount of almond milk, and x2 is the number of dry fruits. His standard rate for a large scoop of vegan ice creamis $6. Almond milk costs $1, and dry fruits cost $3 per scoop. There is an additional fixed cost of $2 for rent that he has to payregardless of whether any ice cream is produced or not.(a) Given the prices of inputs, what is the profit-maximizing input? How many ice cream scoops should Rodirgo sell to maximize hisprofit? What would be his profit?

The production function for the number of ice creams is given asx1 is given as the demand for the…

Rodrigo makes vegan ice cream. His production function for the number of ice creams he makes is ƒ(x1, x₂) = 8(x² + x²) where x₁ is the amount of almond milk, and x₂ is the number of dry fruits. His standard rate for a large scoop of vegan ice cream is $6. Almond milk costs $1, and dry fruits cost $3 per scoop. There is an additional fixed cost of $2 for rent that he has to pay regardless of whether any ice cream is produced or not. (a) Given the prices of inputs, what is the profit-maximizing input? How many ice cream scoops should Rodirgo sell to maximize his profit? What would be his profit?

Rodrigo makes vegan ice cream. His production function for the number of ice creams he makes is ƒ(x1, x₂) = 8(x² + x²) where x₁ is the amount of almond milk, and x₂ is the number of dry fruits. His standard rate for a large scoop of vegan ice cream is $6. Almond milk costs $1, and dry fruits cost $3 per scoop. There is an additional fixed cost of $2 for rent that he has to pay regardless of whether any ice cream is produced or not. (a) Given the prices of inputs, what is the profit-maximizing input? How many ice cream scoops should Rodirgo sell to maximize his profit? What would be his profit?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter7: Economies Of Scale And Scope

Section: Chapter Questions

Problem 7.3IP

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