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Problem:

The manager of the national retailing outlet recently hired the economist to estimate the firm’s production function. Based on economist’s report, the manager now knows that the firm’s production function is given by Q = K1/2 L1/2 and that capital is fixed at one unit.

Required:

1. Compute the average product of labour when 9 units of labour are employed.

2. Compute the marginal product of labour when 9 units of labour are employed.

3. Assume the firm can appoint labour at the wage of $10 per hour and output can be sold at the price of $100 per unit. Find out the profit-maximizing levels of labour and output.

4. What is maximum price of capital at which the firm will still make nonnegative profits?

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M910605

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