Exercise 1 The table below represents the production function for Hawg Wild, a small catering company specializing in barbecued pork. The numbers in the cells represent the number of customers that can be served (i.e., number of dinners) with various combinations of labor and capital. Capital (K) 0 1 2 3 4 5 6 1 100 152 193 230 263 293 2 132 200 255 303 347 387 Labor (L) 3 155 300 357 408 455 4 174 337 400 457 510 5 289 368 437 500 558 6 205 310 396 470 538 600 a) Is this production function a short-run or long-run production function? How can you tell? b) Suppose that Hawg Wild employs 2 workers and 5 units of capital. How many diners will be served? c) Suppose that Hawg Wild employs 2 workers and 5 units of capital, but that the owner, Billy Porcine, is considering adding his nephew to the payroll. What will the marginal product of Billy's nephew be? d) Notice that when Hawg Wild uses 1 unit of capital, the marginal product of the fifth unit of labor is 16. But when Hawg Wild uses 5 units of capital, the marginal product of the fifth unit of labor is 43. Does this production function have diminishing marginal product of labor? Why or why not? e) Suppose that Hawg Wild employs 2 workers and 5 units of capital, but that the owner, Billy Porcine, is considering adding another meat smoker to the kitchen (which will raise the amount of capital input to 6 units). What will the marginal product of the smoker be? f) Hawg Wild employs 2 workers and 5 units of capital. Billy is considering the choice between hiring another worker or buying another smoker. If smokers cost $8 and workers $12, what is the most cost-effective choice for Billy to make? [Hint: For the given input MPL combination (L, K) = (2,5) compare against MPK] W
Exercise 1 The table below represents the production function for Hawg Wild, a small catering company specializing in barbecued pork. The numbers in the cells represent the number of customers that can be served (i.e., number of dinners) with various combinations of labor and capital. Capital (K) 0 1 2 3 4 5 6 1 100 152 193 230 263 293 2 132 200 255 303 347 387 Labor (L) 3 155 300 357 408 455 4 174 337 400 457 510 5 289 368 437 500 558 6 205 310 396 470 538 600 a) Is this production function a short-run or long-run production function? How can you tell? b) Suppose that Hawg Wild employs 2 workers and 5 units of capital. How many diners will be served? c) Suppose that Hawg Wild employs 2 workers and 5 units of capital, but that the owner, Billy Porcine, is considering adding his nephew to the payroll. What will the marginal product of Billy's nephew be? d) Notice that when Hawg Wild uses 1 unit of capital, the marginal product of the fifth unit of labor is 16. But when Hawg Wild uses 5 units of capital, the marginal product of the fifth unit of labor is 43. Does this production function have diminishing marginal product of labor? Why or why not? e) Suppose that Hawg Wild employs 2 workers and 5 units of capital, but that the owner, Billy Porcine, is considering adding another meat smoker to the kitchen (which will raise the amount of capital input to 6 units). What will the marginal product of the smoker be? f) Hawg Wild employs 2 workers and 5 units of capital. Billy is considering the choice between hiring another worker or buying another smoker. If smokers cost $8 and workers $12, what is the most cost-effective choice for Billy to make? [Hint: For the given input MPL combination (L, K) = (2,5) compare against MPK] W
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Show full answers and steps to part d) e) & f)
Transcribed Image Text:Exercise 1
The table below represents the production function for Hawg Wild, a small
catering company specializing in barbecued pork. The numbers in the cells represent the number
of customers that can be served (i.e., number of dinners) with various combinations of labor and
capital.
Capital
(K)
0
1
2
3
4
5
6
1
100
152
193
230
263
293
2
132
255
303
347
387
Labor (L)
3
155
235
300
357
408
455
4
174
264
337
400
457
510
5
190
289
368
437
500
558
6
205
310
396
470
538
600
a) Is this production function a short-run or long-run production function? How can you tell?
b) Suppose that Hawg Wild employs 2 workers and 5 units of capital. How many diners will
be served?
c) Suppose that Hawg Wild employs 2 workers and 5 units of capital, but that the owner, Billy
Porcine, is considering adding his nephew to the payroll. What will the marginal product
of Billy's nephew be?
d) Notice that when Hawg Wild uses 1 unit of capital, the marginal product of the fifth unit
of labor is 16. But when Hawg Wild uses 5 units of capital, the marginal product of the
fifth unit of labor is 43. Does this production function have diminishing marginal product
of labor? Why or why not?
e) Suppose that Hawg Wild employs 2 workers and 5 units of capital, but that the owner, Billy
Porcine, is considering adding another meat smoker to the kitchen (which will raise the
amount of capital input to 6 units). What will the marginal product of the smoker be?
f) Hawg Wild employs 2 workers and 5 units of capital. Billy is considering the choice
between hiring another worker or buying another smoker. If smokers cost $8 and workers
$12, what is the most cost-effective choice for Billy to make? [Hint: For the given input
combination (L, K) = (2,5) compare
against MPK
MPL
W
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