Xanadu produces chocolates and has estimated its daily short-run production function as

???? = 88???? + 53???? 2 − 2.2???? 3

where Q equals quantity, and L equals labor.

Answer the following questions:

1. Find the marginal and average products of labor.

2. At what levels of labor do Stage I, II and III of production fall? Graph the total, average, and marginal products of labor. Label each stage and the maximum number of chocolates (capacity constraint) that can be produced each day.

3. Xanadu Candies may sell as many chocolates as it would like for 15 cents each. It must pay each worker a wage of $7.25 per hour, and each worker works an 8-hour shift. What is the optimal level of labor to hire?

4. Now suppose Xanadu Candies may sell as many chocolates as it would like for $1,000 each. It still must pay each worker a wage of $7.25 per hour, and each worker works an 8-hour shift. What is the optimal level of labor to hire? If the price of chocolates continues to rise, what strategy should Xanadu pursue in the long run?