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Crew Brew produces a popular brand of beer in its mini-brewery located on a small river in Wisconsin. It uses a special formula, combined with
Crew Brew produces a popular brand of beer in its mini-brewery located on a small river in Wisconsin. It uses a special formula, combined with the fresh water from the local stream, to produce a drink popular with local folks and tourists who visit during the summer fishing season, and autumn deer hunting season. The weekly production function of Crew follows the formula:
Q = 500K - 20K2 + 400L - 15L2 + 5KL
where Q=six-packs of beer, K=units of capital, and L=units of labor.
- Write the formula for the marginal product of labor.
- Assume K is fixed at 6 units in the short-run, beer can be sold for $8 a six-pack, and weekly wage rates of workers are $800. Calculate the formula for MRP of labor. How many workers should be hired in the short run? What is the quantity of six-packs that is produced at that level of labor? What is the contribution (revenues less labor costs)?
- If the production function is instead Q=K.6L.75, what would that indicate regarding returns to scale? Explain whether the firm might find it beneficial to expand in the long-run and why.
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