There are three companies - Ceramic, Pottery and Tile - producing mugs. The production function of mugs for Ceramic is given by Qc = 10K0.5 10.5, where K is hours of machine time and L is hours of labour employed. Pottery's production function of mugs is Qp = 10K0.6 10.4 and Tile's production function of mugs is QT = 20K0.6 10.5 a) Using a graph show how, ceteris paribus, an improvement in technology would affect Ceramic's production function. b) If all companies use the same amount of capital and labour, which will generate more output? Explain. c) Find the marginal product of capital and the marginal product of labour for each company. d) Assume that K = L = 2,000. Which company will benefit the most from increasing its labour? Which company will benefit the most from increasing its capital? Why? e) What type of returns to scale is each company exhibiting? Explain.

There are three companies - Ceramic, Pottery and Tile - producing mugs. The production function of mugs for Ceramic is given by Qc = 10K0.5 10.5, where K is hours of machine time and L is hours of labour employed. Pottery's production function of mugs is Qp = 10K0.6 10.4 and Tile's production function of mugs is QT = 20K0.6 10.5 a) Using a graph show how, ceteris paribus, an improvement in technology would affect Ceramic's production function. b) If all companies use the same amount of capital and labour, which will generate more output? Explain. c) Find the marginal product of capital and the marginal product of labour for each company. d) Assume that K = L = 2,000. Which company will benefit the most from increasing its labour? Which company will benefit the most from increasing its capital? Why? e) What type of returns to scale is each company exhibiting? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Isocost and Isoprofit Curve Analysis

An isocost curve in the production theory that is a crucial part of economics depicts different combinations of factor inputs at a given market cost. In other words, this shows all the combinations of production factors that cost the same for the firm to employ. Usually, this can be depicted as a downward sloping straight line when the firms act as the price-takers in the factor markets. The slope of this mainly depicts the relative prices of different production factors.

Question

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There are three companies - Ceramic, Pottery and Tile - producing mugs. The production
function of mugs for Ceramic is given by Qc = 10K0.5 10.5, where K is hours of machine time
and L is hours of labour employed. Pottery's production function of mugs is Qp = 10K0.6L0.4
and Tile's production function of mugs is QT
20K 0.6L0.5.
a) Using a graph show how, ceteris paribus, an improvement in technology would affect
Ceramic's production function.
b)
If all companies use the same amount of capital and labour, which will generate more
output? Explain.
c)
Find the marginal product of capital and the marginal product of labour for each
company.
d) Assume that K = L = 2,000. Which company will benefit the most from increasing its
labour? Which company will benefit the most from increasing its capital? Why?
e) What type of returns to scale is each company exhibiting? Explain.
=

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