Davy metal company produces brass fittings davys engineers, Ask an Expert

Economics

Davy Metal Company produces brass fittings. Davy's engineers estimate the production function represented below as relevant for their long-run capital labor decisions.

Q = 500L0.6K0.8,

Where Q = annual output measured in pounds,

L = labor measured in person hours,

K = capital measured in machine hours.

Davy's employees are relatively highly skilled and earn $15 per hour. The firm estimates a rental charge of $50 per hour on capital. Davy forecasts annual costs of $500,000 per year, measured in real dollars.

a. Write the equation for the isocost line.

b. Determine the MRTS for the firm.

c. Determine the firm's optimal capital-labor ratio (expansion path).

d. How much capital and labor should the firm employ given a $500,000 budget?

e. Determine the firm's output.f. Is this an increasing, decreasing, or constant returns to scale production function? Explain

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91588212

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