What effect would this have on the firm optimal output

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Making dresses in a labor intensive process. Indeed, the production function of a dress making firm is well described by the equation Q=L - L^2/800, where Q denotes the number of dresses per week and L is the number of labor hours per week. The firms cost of hiring an extra hour of labor is $20 per hour (wage plus fringe benefits.) The firm faces the fixed selling price, P = $40. b.) Over the next 2 years, labor costs are expected to be unchanged, but dress prices are expected to increase to $50. What effect will this have on the firm's optimal output? Explain. Suppose that inflation is expected to increase the firm's labor cost and output price by identical (percentage) amounts. What effect would this have on the firm's output. c.) Finally, suppose that MCL =$20 and P=$50 but that labor productivity (output per labor hour) is expected to increase by 25%over the next 5 years. What effect would this have on the firm's optimal output? Explain.

Reference no: EM13145965

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