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3. An electronics plant's production function is Q = 5LK, where Q is its output rate, L is the amount of labor it uses per period of time and K is the amount of capital it uses per period of time. The Price of labor is $1 per unit of labor and the price of capital is $2 per unit of capital.

3. An electronics plant's production function is Q = 5LK, where Q is its output rate, L is the amount of labor it uses per period of time and K is the amount of capital it uses per period of time. The Price of labor is $1 per unit of labor and the price of capital is $2 per unit of capital.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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3. An electronics plant's production function is Q = 5LK, where Q is its output rate, L is the amount of labor it uses per period of time and K is the amount of capital it uses per period of time. The Price of labor is $1 per unit of labor and the price of capital is $2 per unit of capital. a) What is the optimal combination of inputs the plant should use to produce 1000 units of output per period? b) Suppose that the price of labor increases to $2 per unit. What effect will this have on optimal L and K to produce Q=1000? c) Is this plant subject to decreasing returns to scale? Why or why not?
Transcribed Image Text:3. An electronics plant's production function is Q = 5LK, where Q is its output rate, L is the amount of labor it uses per period of time and K is the amount of capital it uses per period of time. The Price of labor is $1 per unit of labor and the price of capital is $2 per unit of capital. a) What is the optimal combination of inputs the plant should use to produce 1000 units of output per period? b) Suppose that the price of labor increases to $2 per unit. What effect will this have on optimal L and K to produce Q=1000? c) Is this plant subject to decreasing returns to scale? Why or why not?
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