Assignment-2-Fall2015

3*. Iris considers starting to produce tulip bulbs. Her production inputs are labor N (expressed in hours) and greenhouse area A (expressed in square meters). The price of one hour of labor is 400 SEK, while a square meter of greenhouse area costs 100 SEK. The production function

Assignment-2-Fall2015

for tulip bulbs is given by q=2N^1/2 A^1/2 .

a) State Iris's cost minimization problem and use it to derive the optimal quantities of N and A given the number of tulips produced. b) Derive Iris's total cost function. c) Derive the marginal cost function of producing tulip bulbs. d) Should Iris start production of tulip bulbs if the price is 100 SEK per bulb?