Question
1. The following is used by a firm: skilled work (SW), unskilled (UW) work and inventory (I), used to produce output (Q). The firms production
1. The following is used by a firm: skilled work (SW), unskilled (UW) work and inventory (I), used to produce output (Q). The firms production function is given by f(UW, SW) = 2UW + 6min{SW, I}. SW indicates skilled work, I indicates inventory & UWS indicates unskilled work. Say UW 0 and SW 0. In this scenario, wUW = 8, wSW = 10, wI = 12 indicate the prices of unskilled work, skilled work, and inventory respectively. (i) Note that (UW, SW, I) = (10, 7, 5). What is the amount of output produced by this firm? How much is the total cost of producing that level of output? (ii) Q0 and C0 respectively indicate the value of output and total costs obtained in part (i). The firm hires you as a consulting professional to find cost savings. Can you maintain Q0 and reduce costs below C0 without reducing unskilled labour? Suggest three numbers for UW, SW, and I and check they generate Q0 but reduces costs below C0. (iii) Your (ii) recommendation has been successful. The firm is now seeking possible restructuring options which could INCREASE output. Keeping the costs the same as part (ii), what levels of skilled work (SW*), unskilled work (UW* ), and inventory (I*) would you suggest to maximize output? What is the maximum level of output?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started