Tim is a baker who produces doughnuts. He can access labour at a rate of $2 per hour, and capital at a rate of $0.25 per machine hour. He produces doughnuts according to Q = L + K0.5.
If the bakery is operating with an optimal factor allocation, and producing 40 doughnuts per day, determine the average total cost of a doughnut.
The bakery employs one worker, Anil, who consumes doughnuts (d) and other goods (y) with utility U(d,y) = ed y. (Assume y is the Marshallian good, with P...