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1. (Production, 40 pts) Jasmine has just inherited a restaurant. In the short run, she has to stick with the current kitchen and location (i
1. (Production, 40 pts) Jasmine has just inherited a restaurant. In the short run, she has to stick with the current kitchen and location (i .e. capital is fixed), but she can hire and fire as many workers as she likes, as there are no contracts in her industry (i .e. labor is variable). In the long run, she can also change kitchen and location. She currently has 16 units of capital and 9 units of labor. She produces output (meals) according to the function q = f (L, K) = LO'SKO'75 a. In the short run, if Jasmine needs to produce 36 additional meals (or rather small fractions thereof), how many additional (small) units of labor does she need? (6 pts) b. How much output does a worker (unit of labor) produce on average? If you hired an additional worker would the average output per worker increase or decrease? (6 pts) c. In the long run, if Jasmine determines to increase capital input only instead of additional labor to produce 36 additional meals, how many additional (small) units of capital would be needed? (6 pts) d. Due to ooding, 8 (small) units of kitchen machinery (i .e. capital) are not working. How many more (small) units of labor does Jasmine need to produce the same output? [The number of units does not have to be an integer] (8 pts) e. The oods are over, but some employees are sick. If Jasmine wanted to keep output constant, how many additional (small) units of capital would she need to cover for the loss of 3 (small) units of labor? [The number of units does not have to be an integer] (8 pts) f. How easy can Jasmine substitutes capital for labor? That is, find the elasticity of substitution for his production function. (6 pts)
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