2. The Longheel Press produces memo pads in its local shop. The company can rent its equipment and hire workers at competitive rates. Equipment needed for this operation can be rented at $52 per hour, and labor can be hired at $12 per worker hour. The company has allocated $150,000 for the initial run of memo pads. The production function using available technology can be expressed as: Q=0.25K 0.25 0.75 where Q is memo pads (boxes per hour), K is capital input (units per hour), and L is labor input (units of worker time per hour). The marginal products of labor and capital are as follows: MPL = (0.75)(0.25)K 0.25-0.25 a. Construct the isocost equation. and MPK = (0.25)(0.25)K-0.750.75 b. Determine the appropriate input mix to get the greatest output for an outlay of $150,000 for a production run of memo pads. Also, compute output. c. Explain what would happen in the short-run (keeping capital fixed) to the appropriate input mix if production were changed to 1,500 units per hour. Would the input combination be different in the long-run? If so, how would it change? Explain.

2. The Longheel Press produces memo pads in its local shop. The company can rent its equipment and hire workers at competitive rates. Equipment needed for this operation can be rented at $52 per hour, and labor can be hired at $12 per worker hour. The company has allocated $150,000 for the initial run of memo pads. The production function using available technology can be expressed as: Q=0.25K 0.25 0.75 where Q is memo pads (boxes per hour), K is capital input (units per hour), and L is labor input (units of worker time per hour). The marginal products of labor and capital are as follows: MPL = (0.75)(0.25)K 0.25-0.25 a. Construct the isocost equation. and MPK = (0.25)(0.25)K-0.750.75 b. Determine the appropriate input mix to get the greatest output for an outlay of $150,000 for a production run of memo pads. Also, compute output. c. Explain what would happen in the short-run (keeping capital fixed) to the appropriate input mix if production were changed to 1,500 units per hour. Would the input combination be different in the long-run? If so, how would it change? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

2. The Longheel Press produces memo pads in its local shop. The company can rent its
equipment and hire workers at competitive rates. Equipment needed for this operation can be
rented at $52 per hour, and labor can be hired at $12 per worker hour. The company has allocated
$150,000 for the initial run of memo pads. The production function using available technology
can be expressed as:
Q=0.25K 0.25 0.75
where Q is memo pads (boxes per hour), K is capital input (units per hour), and L is labor input
(units of worker time per hour). The marginal products of labor and capital are as follows:
MPL = (0.75)(0.25)K 0.25-0.25
a. Construct the isocost equation.
and
MPK = (0.25)(0.25)K-0.750.75
b. Determine the appropriate input mix to get the greatest output for an outlay of $150,000 for a
production run of memo pads. Also, compute output.
c. Explain what would happen in the short-run (keeping capital fixed) to the appropriate input mix
if production were changed to 1,500 units per hour. Would the input combination be different in
the long-run? If so, how would it change? Explain.

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Step 1: Define production function.

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Step 2: Contruct the isocost equation.

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Step 3: Calculate appropriate input mix for an outlay of $150,000.

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Step 4: Calculate chnage in the short run and in the long run for output level of 1500 units.

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