ENGR.ECONOMIC ANALYSIS
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ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Consider a company that operates with a production function that coordinates units of work (L) and units of machines (K).
The quantity of products produced in a month is given by the function Q = 3KL. Each machine is used at a monthly cost of $15,000 and each unit of work at a cost of 5,000 per month.
The cost of the products is given by the labor cost, the cost of the machines and an additional $500 of raw materials per unit of product.
Considering that the factory has 10 leased machines in operation (Fixed Cost) and could hire any amount of work each month. Ask if:
a) Indicate the Average and Marginal Productivity functions of L
b) Indicate the short-run total, average and marginal cost functions of this factory as a function of Q (quantity of product).
c) How many units of work are required to produce 300 units of product? What is the average cost per product?
d) What is the marginal cost of unit 300, calculated in (c)?
e) What is the marginal rate of substitution for K and L? In other words, when the company chooses to have more units of K or L.
Transcribed Image Text:Consider a company that operates with a production function that coordinates units of work (L) and units of machines (K).
The quantity of products produced in a month is given by the function Q = 3KL. Each machine is used at a monthly cost of $15,000
and each unit of work at a cost of 5,000 per month.
The cost of the products is given by the labor cost, the cost of the machines and an additional $500 of raw materials per unit of
product.
Considering that the factory has 10 leased machines in operation (Fixed Cost) and could hire any amount of work each month. Ask if:
a) Indicate the Average and Marginal Productivity functions of L
b) Indicate the short-run total, average and marginal cost functions of this factory as a function of Q (quantity of product).
c) How many units of work are required to produce 300 units of product? What is the average cost per product?
d) What is the marginal cost of unit 300, calculated in (c)?
e) What is the marginal rate of substitution for K and L? In other words, when the company chooses to have more units of K or L.
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