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Q F (K, L) K L: (Please Show Complete Solution.)

The document provides information about production functions, costs of production, and profit maximization for several firms. It includes: 1) A firm's production function and calculations to find average and marginal products of labor and capital. 2) A table with information about a firm's output, inputs, costs and returns to scale. It asks questions about profit maximization. 3) Information about a cost function and calculations of different cost components. 4) A question about minimizing costs by adjusting labor and capital. 5) A table with cost data to calculate fixed, variable, total, average and marginal costs.

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Karl Simone Esmilla
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206 views4 pages

Q F (K, L) K L: (Please Show Complete Solution.)

The document provides information about production functions, costs of production, and profit maximization for several firms. It includes: 1) A firm's production function and calculations to find average and marginal products of labor and capital. 2) A table with information about a firm's output, inputs, costs and returns to scale. It asks questions about profit maximization. 3) Information about a cost function and calculations of different cost components. 4) A question about minimizing costs by adjusting labor and capital. 5) A table with cost data to calculate fixed, variable, total, average and marginal costs.

Uploaded by

Karl Simone Esmilla
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Assignment #5: Please write your names.

Failure to write your names will cost you 5 points per


member. Submit your assignment in the Discussion Board not in the Group Discussion Board.
Deadline for submission is on October 19, 2021.
1. A firm can manufacture a product according to the production function:

Q=F ( K , L )=K 3/ 4 L1/ 4


a. Calculate the average product of labor, AP L, when the level of capital is fixed at 81
units and the firm uses 16 units of labor. How does the average product of labor
change when the firm uses 256 units of labor?
K = 81
L = 16
Q = (81)3/4 (16)1/4 = 54
APL = Q/L = 54/16 = 3.375

K = 81
L = 256
Q = (81)3/4 (256)1/4 = (27) (4) = 108

APL = 108/81 = 0.422

b. Find an expression for the marginal product of labor, MP L, when the amount of
capital is fixed at 81 units. Then, illustrate that the marginal product of labor
depends on the amount of labor hired by calculating the marginal product of labor
for 16 and 81 units of labor.
MPL = (1/4) (81)0.75 (L)-3/4 = (27/4) (L)-3/4
L = 16
MPL = (27/4) (16) = 0.844

L = 81
MPL = (27/4) (81) = 0.25
Thus, as the number of units of labor hired increases, the marginal product of labor
decreases MPL (16) = 0.844 > 0.25 = MPL (81), holding the level of capital fixed.

c. Suppose capital is fixed at 81 units. If the firm can sell its output at a price of $200
per unit of output and can hire labor at $50 per unit of labor, how many units of
labor should the firm hire in order to maximize profits?
(Please show complete solution.)
VMPL = (P) (MPL) = ($200) (27/4) (L)-3/4 = 1350(L)-3/4
Setting this equal to the wage of $50gives 1350(L)-3/4= 50.
Solving for L, the optimal quantity of labor is L = 81.
2. A firm’s product sells for $4 per unit in a highly competitive market. The firm produces
output using capital (which it rents at $25 per hour) and labor (which is paid a wage of $30 per
hour under a contract for 20 hours of labor services). Complete the following table and draw a
graph to illustrate your answers to questions f, g and h with (1) on the horizontal axis and (4)
on the vertical axis. For d and e, show your worksheet.
(1) (2) (3) (4) (5) (6) (7)
Marginal Average Average Value Marginal
Product of Product of Product Product of
Capital Labor Output
Capital Capital of Labor Capital
MPK APK APL VMPK
0 20 0 - - - -
1 20 50 50 50 2.50 200
2 20 150 100 75 7.50 400
3 20 300 150 100 15 600
4 20 400 100 100 20 400
5 20 450 50 90 22.50 200
6 20 475 25 79.17 23.75 100
7 20 475 0 67.86 23.75 0
8 20 450 -25 56.25 22.50 -100
9 20 400 -50 44.44 20 -200
10 20 300 -100 30 15 -400
11 20 150 -150 13.64 7.50 -600

a. Identify the fixed and variable inputs.


- Labor is the fixed input while capital is the variable input.
b. What are the firm’s fixed costs?
- Fixed costs are 20($30) = $600.
c. What is the variable cost of producing 475 units of output?
- To produce 475 units in the least-cost manner requires 6 units of capital,
which cost$25 each. Thus, variable costs are ($25) (6) = $150.
d. How many units of the variable input should be used to maximize profits?
- Using the VMPK= rule, K = 6 maximizes profits.
e. What are the maximum profits this firm can earn?
- The maximum profits are$4(475) -$30(20) -$25(6) = $1,150.
f. Over what range of variable input usage do increasing returns to scale exist?
- There are increasing marginal returns when K is between 0 and 3.
g. Over what range of variable input usage do decreasing returns to scale exist?
- There are decreasing marginal returns when K is between 3 and 11.
h. Over what range of variable input usage do negative marginal returns exist?
- There are negative marginal returns when K is greater than 7.
3. An economist estimated that the cost function of a single product firm is:
C(Q) = 100 + 20Q + 15Q2 + 10Q3
Based on the information, determine:
a. The fixed cost of producing 10 units of output.
FC = 100
b. The variable cost of producing 10 units of output.
VC = 20 (10) + 15(10)2 + 10(10)3
= 200 + 1500 + 10000
= 11700
c. The total cost of producing 10 units of output.
VC + FC = 11700 + 100 = 11800
d. The average fixed cost of producing 10 units of output.
FC/10 = 100/10 = 10
e. The average variable cost of producing 10 units of output.
VC/10 = 11700/10 = 1170
f. The average total cost of producing 10 units of output.
TC/10 = 11800/10 = 1180
g. The marginal cost when Q = 10.
(Please show complete solution.)
MC (Q) = 20 + 30Q + 30Q2
MC (10) = 20 + 300 + 3000 = 3320
4. A manager hires labor and rents capital in a very competitive market. Currently, the wage
rate is $12 per hour and capital is rented at $8 per hour. If the marginal product of labor is 60
units per hour and the marginal product of capital is 60 units per hour, is the firm using the
cost-minimizing combination of labor and capital? If not, should the firm increase or decrease
the amount of capital used in its production process? (Please show complete solution.)
The ratio of marginal product of labor and wage rate:
= 60/12 = 5
The ratio of marginal product of capital and rent:
= 60/8 = 7.5
Since the ratio is greater for capital, it means that the manager should decrease the amount
of capital used in the production process.
5. A firm’s fixed cost for 0 units of output and its average total cost of producing different
output levels are summarized in the following table. Complete the table to find the fixed cost,
variable cost, total cost, average fixed cost, average variable cost and marginal cost at all
relevant levels of output. Graph the following information with (1) on the horizontal axis and
(2), (3) and (4) on vertical axis. For the second graph, plot (5), (6), (7) and (8) against (1) on the
horizontal axis.

(1) (2) (3) (4) (5) (6) (7) (8)


Average Average
Fixed Variable Average Marginal
Quantity Total Cost Fixed Variable
Cost Cost Total Cost Cost
Q TC Cost Cost
FC VC ATC MC
AFC AVC
0 15,000 0 15,000 - - - -
100 15,000 15,000 30,000 150.00 150.00 300 150
200 15,000 25,000 40,000 75.00 125.00 200 100
300 15,000 37,500 52,500 50.00 125.00 175 125
400 15,000 75,000 90,000 37.50 187.50 225 375
500 15,000 147,500 162,500 30.00 295.00 325 725
600 15,000 225,000 240,000 25.00 375.00 400 775

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