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Calculate its profit and the optimal

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Dirt Diggers (DD) is an excavating firm that excavates roadside ditches for laying drainpipe. Its output follows the following production function:

Q = 10L - .1L2

where L denotes labor hours and Q the length of the ditch in meters. DD hires labor at the going wage rate of $16 per hours.

(a) DD has received an offer to excavate 250 meters for a lump sum price of $700. Should it accept the offer? Explain with appropriate calculations.

(b) Suppose instead of the previous offer DD is offered as much or as little excavation work at a price of $2.00 per meter dug. Should it accept the offer? If it does, calculate its profit and the optimal (profit maximizing) output (meters dug) and labor usage.

Reference no: EM131584672

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