You are a manager for Herman Miller, a major manufacturer of office furniture. You recently hired an economist to work with engineering and operations experts to estimate the production function for a particular line of office chairs. The report from these experts indicates that the relevant production function is: 1 1 Q = F(K, L) = 2LZKZ Where K represents capital equipment and L is labour. a) In ordinary language, explain what it means for this production function to exhibit diminishing returns to labour. Does this production function have this property? b) In ordinary language, explain what it means for this production function to exhibit constant returns to scale. Does this production function have this property? Suppose the firm has already spent $8000 on 9 units of capital that it cannot change for the foreseeable future. Suppose also that each unit of labour costs $120 per day and output is sold at $400 each. c) What is the profit-maximizing level of output and labour usage? d) What is the maximum profit?

You are a manager for Herman Miller, a major manufacturer of office furniture. You recently hired an economist to work with engineering and operations experts to estimate the production function for a particular line of office chairs. The report from these experts indicates that the relevant production function is: 1 1 Q = F(K, L) = 2LZKZ Where K represents capital equipment and L is labour. a) In ordinary language, explain what it means for this production function to exhibit diminishing returns to labour. Does this production function have this property? b) In ordinary language, explain what it means for this production function to exhibit constant returns to scale. Does this production function have this property? Suppose the firm has already spent $8000 on 9 units of capital that it cannot change for the foreseeable future. Suppose also that each unit of labour costs $120 per day and output is sold at $400 each. c) What is the profit-maximizing level of output and labour usage? d) What is the maximum profit?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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