Question a car companys short-run production function is, Ask an Expert

Management Studies

Question: A car company's short-run production function is Q=10KL, where Q represents quantity of cars, K denotes capital input (units per hour), and L denotes labor input (units of worker time per hour). The marginal products of labor and capital are as follows:

MP_L = 10K, MP_K = 10L

The company can rent its equipment and hire workers at competitive rates. Equipment needed for this operation can be rented at $100 per hour, and labor can be hired at $50 per worker hour. The company has allocated $50,000 for the initial investment.

a. What is the appropriate input mix to get the greatest output?

b. What is the highest level of output the company can achieve with the initial investment?

c. Explain what would happen in the short run to the appropriate input mix if production is increased by more investment. Would the input combination be different in the long run? If so, how would it change? Explain.

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M92672423

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