(Answered) Dirt diggers dd is an excavating firm that excavates

Economics

Dirt Diggers (DD) is an excavating firm that excavates roadside ditches for laying drainpipe. Its output follows the following production function:

Q = 10L - .1L2

where L denotes labor hours and Q the length of the ditch in meters. DD hires labor at the going wage rate of $16 per hours.

(a) DD has received an offer to excavate 250 meters for a lump sum price of $700. Should it accept the offer? Explain with appropriate calculations.

(b) Suppose instead of the previous offer DD is offered as much or as little excavation work at a price of $2.00 per meter dug. Should it accept the offer? If it does, calculate its profit and the optimal (profit maximizing) output (meters dug) and labor usage.

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Business Economics, Economics

Category:- Business Economics
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