Question
1. The production function of your company is estimated to be of the Cobb-Douglass form: Q= k 3/4 L 1/4 Right now, your company employs
1. The production function of your company is estimated to be of the Cobb-Douglass form:
Q= k3/4L1/4
Right now, your company employs 81 machines and 16 workers.
a. Should you be satisfied with your firm's performance if your company currently produces 50 units of output? Why or why not?
b. How much does an average worker produce if the firm operates at peak performance?
c. How much did the 5th worker contribute to production? Note that you still have the fixed amount of 81 units of capital.
d. Should you hire the 17th worker if your good sells for the price of $100 and labor cost per worker is $84?
e If the price of the product is $200 and if you currently have a fixed amount of 81 units of capital, how many units of labor should you hire to maximize profit if labor costs at a rate of $50 per worker?
f. Using information from part (e) and assuming capital costs are $60 per unit, what is the profit the company earns?
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