5. Suppose that a firm is producing in the short run with output given by:Q = 10L – 0.25L2, where L is the labour input. The firm hires labour at wage of €16per hour and sells the good in a competitive market at P = €8 per unit.a) Determine the firm’s marginal product of labour.b) Find the firm’s optimal use of labour, the associated level of output and the marginal product of labour at this employment level. Explain the meaning of the latter.c) Management of the firm has carefully measured output elasticity in the past three years and has determined that it is 1.2. What sort of returns to scale does the firm face? Interpret this number in one sentence.

Marginal product (MPL) = dQ/dL = 10 - 0.5L

Answered: Suppose that a firm is producing in the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. Suppose that a firm is producing in the short run with output given by:
Q = 10L – 0.25L2, where L is the labour input. The firm hires labour at wage of €16

per hour and sells the good in a competitive market at P = €8 per unit.

a) Determine the firm’s marginal product of labour.
b) Find the firm’s optimal use of labour, the associated level of output and the marginal product of labour at this employment level. Explain the meaning of the latter.
c) Management of the firm has carefully measured output elasticity in the past three years and has determined that it is 1.2. What sort of returns to scale does the firm face? Interpret this number in one sentence.

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