Question
Given the Production Function of a perfectly competitive firm: Q = 60L + 12L 2 - L 3 , where Q = Output and L
Given the Production Function of a perfectly competitive firm: Q = 60L + 12L2 - L3, where Q =
Output and L = labor input
a. At what value of L will Diminishing Returns take effect?
b. Calculate the range of values for labor over which stages I, II, and III occur?
c. Suppose that the wage rate is $40 and the price of output is $2 per unit. How many workers should
the firm hire?
d. At what value of L will Q be at its maximum? What is the maximum amount of Q?
e. If demand forecasts predict an output level of between 400 and 450 in the next decade, what would
be your long-run strategy to optimize the resources of your company?
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