Jimmy Johns decides to deliver sandwiches by tandem bicycles…
Jimmy Johns decides to deliver sandwiches by tandem bicycles, as it allows them to deliver sandwiches more efficiently. As seen in the isoquant graph below, each tandem bicycle requires two users in order to operate. a. Jimmy Johns currently delivers 40 subs/hours. It faces a wage rate of $5/hour and a rental rate of bicycles of $10/hours. How many tandem bikes and workers should JJ’s buy to cost minimize? Show this using isocost curves and label the input choice as point A. (8 points) b. Jimmy Johns is operating in the short run due to union contracts. These contracts force them to use L=10. Say that SC Johnson asks Jimmy Johns to supply 50 additional sandwiches to feed its employees. Can Jimmy Johns deliver these sandwiches? What about in the long run? Be sure to label the input choices in the long run clearly in the graph as point B. (8 points) c. Trace out the long run expansion path in the graph above. (4 points) d. Does this production function exhibit increasing returns to scale, constant returns to scale, or decreasing returns to scale? (6 points)
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