Suppose you are the production manager of a firm that has a production function: Q = (K)(L0.5) Where Q represents the firm's level of out put, K is the number of units of capital you utilize, and L is the number of units of labour you hire. The rental rate of a unit of capital is given by r = $100, and the wage rate for a unit of labour is given by w= $10. The firm operations in a competitive market where its output can be sold for $100 per unit. (a) Suppose the firm is operating in the short run, with its capital fixed at K=1. What level of Q will maximize its profit? (b) Now suppose that in the long run, the firm can set its capital to be either K=1 or K=2. What would you recommend in order to maximize profit?
Suppose you are the production manager of a firm that has a production function: Q = (K)(L0.5) Where Q represents the firm's level of out put, K is the number of units of capital you utilize, and L is the number of units of labour you hire. The rental rate of a unit of capital is given by r = $100, and the wage rate for a unit of labour is given by w= $10. The firm operations in a competitive market where its output can be sold for $100 per unit. (a) Suppose the firm is operating in the short run, with its capital fixed at K=1. What level of Q will maximize its profit? (b) Now suppose that in the long run, the firm can set its capital to be either K=1 or K=2. What would you recommend in order to maximize profit?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose you are the production manager of a firm that has a production function: Q = (K)(L0.5) Where Q represents the firm's level of out put, K is the number of units of capital you utilize, and L is the number of units of labour you hire. The rental rate of a unit of capital is given by r = $100, and the wage rate for a unit of labour is given by w= $10. The firm operations in a competitive market where its output can be sold for $100 per unit. (a) Suppose the firm is operating in the short run, with its capital fixed at K=1. What level of Q will maximize its profit? (b) Now suppose that in the long run, the firm can set its capital to be either K=1 or K=2. What would you recommend in order to maximize profit?
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