uppose that you are the manager of a company that vaccinates human beings for biological diseases. Your company uses two inputs to produce vaccinations: physicians and laboratories. However, this is a short-run analysis where physicians are variable but laboratories are fixed. Suppose that each physician costs $500 per day (for an annual salary of about $175,000) and the daily cost for the laboratory is $1,500 (for rental cost of about $547,500 per year). In the short run, your company has 1 laboratory. The following table presents potential daily production levels with requisite input combinations. Physicians Laboratories Vaccinations (Q) TC TFC TVC MC ATC AFC AVC 0 1 0 1500 1500 0 - - - - 3 1 1 3000 1500 1500 1500 3000 1500 1500 5 1 2 4000 1500 2500 1000 2000 750 1250 6 1 3 4500 1500 3000 500 1500 500 1000 9 1 4 6000 1500 4500 1500 1500 375 1125 15 1 5 9000 1500 7500 3000 1800 300 1500 24 1 6 13500 1500 12000 4500 2250 250 2000 36 1 7 19500 1500 18000 6000 2785.71 214.28 2571.43 51 1 8 27000 1500 25500 7500 3375 187.5 3187.5 Suppose the industry for vaccinating humans is perfectly competitive, and that all companies have production functions and cost functions that are identical to yours. Also, assume that the market price for a vaccination against biological diseases is $6,500. How much output should your company produce per day in the short run to maximize profits? At this output level, how many physicians do you hire?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter10: Cost Functions

Section: Chapter Questions

Problem 10.5P

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Suppose that you are the manager of a company that vaccinates human beings for biological diseases. Your company uses two inputs to produce vaccinations: physicians and laboratories. However, this is a short-run analysis where physicians are variable but laboratories are fixed. Suppose that each physician costs $500 per day (for an annual salary of about $175,000) and the daily cost for the laboratory is $1,500 (for rental cost of about $547,500 per year). In the short run, your company has 1 laboratory. The following table presents potential daily production levels with requisite input combinations.

Physicians	Laboratories	Vaccinations (Q)	TC	TFC	TVC	MC	ATC	AFC	AVC
0	1	0	1500	1500	0	-	-	-	-
3	1	1	3000	1500	1500	1500	3000	1500	1500
5	1	2	4000	1500	2500	1000	2000	750	1250
6	1	3	4500	1500	3000	500	1500	500	1000
9	1	4	6000	1500	4500	1500	1500	375	1125
15	1	5	9000	1500	7500	3000	1800	300	1500
24	1	6	13500	1500	12000	4500	2250	250	2000
36	1	7	19500	1500	18000	6000	2785.71	214.28	2571.43
51	1	8	27000	1500	25500	7500	3375	187.5	3187.5

Suppose the industry for vaccinating humans is perfectly competitive, and that all companies have production functions and cost functions that are identical to yours. Also, assume that the market price for a vaccination against biological diseases is $6,500.

How much output should your company produce per day in the short run to maximize profits?
At this output level, how many physicians do you hire?

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