Essay
Sarah's Pretzel plant has the following short-run cost function: C(q, K) = 
+ 50K where q is Sarah's output level, w is the cost of a labor hour, and K is the number of pretzel machines Sarah leases. Sarah's short-run marginal cost curve is MC(q, K) = 
. At the moment, Sarah leases 10 pretzel machines, the cost of a labor hour is $6.85, and she can sell all the output she produces at $35 per unit. If the cost per labor hour rises to $7.50, what happens to Sarah's optimal level of output and profits?
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