You manage a store that mass-produces candies by teams of workers using assembly candy machines. The technology is summarized by the production function q = 3 LK where q is the number of candies per week in thousands, K is the number of assembly candy machines, and L is the number of labor teams. Each candy assembly machine rents for r= $6,000 per week, and each team costs w = $1000 per week. Candy costs are given by the cost of labor teams and machines, plus $600 per thousand of candies for ingredients. Your store has a fixed installation of 2 candy assembly machines as part of its design. a. What is the cost function for your store – namely, how much would it cost to produce q candies? What are average and marginal costs for producing q candies? How do average costs vary with output? b. How many teams are required to produce 3 (thousands) candies? What is the average
You manage a store that mass-produces candies by teams of workers using assembly candy machines. The technology is summarized by the production function q = 3 LK where q is the number of candies per week in thousands, K is the number of assembly candy machines, and L is the number of labor teams. Each candy assembly machine rents for r= $6,000 per week, and each team costs w = $1000 per week. Candy costs are given by the cost of labor teams and machines, plus $600 per thousand of candies for ingredients. Your store has a fixed installation of 2 candy assembly machines as part of its design. a. What is the cost function for your store – namely, how much would it cost to produce q candies? What are average and marginal costs for producing q candies? How do average costs vary with output? b. How many teams are required to produce 3 (thousands) candies? What is the average
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.9P
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Transcribed Image Text:You manage a store that mass-produces candies by teams of workers using assembly candy
machines. The technology is summarized by the production function
q = 3 LK
where q is the number of candies per week in thousands, K is the number of assembly candy
machines, and L is the number of labor teams. Each candy assembly machine rents for r =
per week, and each team costs w = $1000 per week. Candy costs are given by the cost of labor
teams and machines, plus $600 per thousand of candies for ingredients. Your store has a fixed
installation of 2 candy assembly machines as part of its design.
= $6,000
What is the cost function for your store – namely, how much would it cost to produce
q candies? What are average and marginal costs for producing q candies? How do
average costs vary with output?
а.
b. How many teams are required to produce 3 (thousands) candies? What is the average
cost per thousand candies?
You are asked to make recommendations for the design of a new production facility in
the store. What capital/labor (K/L) ratio should the new plant accommodate if it wants
to minimize the total cost of producing at any level of output q?
С.
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