The quantity, Q, of a product manufactured by a company is given by Q=aK6L04 where a is a positive constant, K is the quantity of capital and L is the quantity of labor used. Capital costs are $22 per unit, labor costs are $11 per unit, and the company wants costs for capital and labor combined to be no higher than $165. Suppose you are asked to consult for the company, and learn that 5 units each of capital and labor are being used. (a) What do you advise? Should the company use more or less labor? More or less capital? If so, by how much? Enter the exact answers. The company should increase labor by 1 unit(s) and reduce capital by 0.5 unit(s). (b) Complete the sentence below to sell your advice to the board of directors. Round your answer to two decimal places. Reducing the quantity of capital and increasing the quantity of labor will increase production by i !% while holding costs to $165.
The quantity, Q, of a product manufactured by a company is given by Q=aK6L04 where a is a positive constant, K is the quantity of capital and L is the quantity of labor used. Capital costs are $22 per unit, labor costs are $11 per unit, and the company wants costs for capital and labor combined to be no higher than $165. Suppose you are asked to consult for the company, and learn that 5 units each of capital and labor are being used. (a) What do you advise? Should the company use more or less labor? More or less capital? If so, by how much? Enter the exact answers. The company should increase labor by 1 unit(s) and reduce capital by 0.5 unit(s). (b) Complete the sentence below to sell your advice to the board of directors. Round your answer to two decimal places. Reducing the quantity of capital and increasing the quantity of labor will increase production by i !% while holding costs to $165.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The quantity, Q, of a product manufactured by a company is given by
Q=aK6L04
where a is a positive constant, K is the quantity of capital and L is the quantity of labor used. Capital costs are $22 per unit, labor costs
are $11 per unit, and the company wants costs for capital and labor combined to be no higher than $165. Suppose you are asked to
consult for the company, and learn that 5 units each of capital and labor are being used.
(a) What do you advise? Should the company use more or less labor? More or less capital? If so, by how much?
Enter the exact answers.
The company should
increase
labor by 1
unit(s) and reduce
capital by
0.5
unit(s).
(b) Complete the sentence below to sell your advice to the board of directors.
Round your answer to two decimal places.
Reducing
the quantity of capital and
increasing
the quantity of labor will increase production by
i
!% while holding costs to $165.
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