What are the optimum number of workers

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Reference no: EM13969768

The quantity, q, of a product manufactured depends on the number of workers, W, and the amount of capital invested, K, and is given by q = 6W^(3/4)K^(1/4) . Labor costs are $10 per worker and capital costs are $420 per unit, and the budget is $3000.

(a) What are the optimum number of workers and the optimum number of units of capital?

(b) Show that at the optimum values of W and K, the ratio of the marginal productivity of labor (∂q/qW) to the marginal productivity of captial (∂q/qK) is the same as the ratio of the cost of a unit of labor to the cost of a unit of capital.

(c) Recompute the optimum values of W and K when the budget is increased by one dollar. Check that increasing the budget by $1 allows the production of λ is the Lagrange multiplier.

Reference no: EM13969768

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