Answered: Objective: Find optimal L, Q, and…

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

Objective: Find optimal L, Q, and profits for every change in market conditions.

•Case 1: Economists calculated that Amazon’s productivity function in 2000 was: Q=40K^0.55 L^0.45 . Also, average price per unit (mostly books) = $22, wage per unit = $8, and at that time, Amazon had one distribution center (K) at $10,000 (including renting rate, inventory costs, etc.)

Case 2: In 2005, Amazon expanded its distribution centers to 5.

Case 3: In 2012, Amazon bought robot maker Kiva System, changing Amazon’s productivity function to: Q=80K^0.55 L^0.45 , keeping the rest of the information as in Case 2.

Case 4: In 2019, Amazon announced hourly wage of $15 per unit.

Compare optimal number of workers, Q, and profits under these corporate and market changes (Table).

Case1:

L1 =

Q1 =

Profits1 =

Case2:

L2 =

Q2 =

Profits2 =

Case3:

L3 =

Q3 =

Profits3 =

Case4:

L4 =

Q4 =

Profits4 =

Expert Solution

Step 1

Hi there , as per our guidelines we are only allowed to answer 3 sub parts at max . So kindly repost the remaining parts to get them solved .

Optimal level of production is achieved when the marginal rate of technical substitution (MRTS) which is the rate at which one input is substituted for other , is equal to the factor price ratio . At this point of production input factors are used at optimum level .

Optimal Condition : MRTS = w/r (where , w = wage , r = price of K )