Reference no: EM133711060
Question: You are the manager for Herman Miller, a major manufacturer of office furniture. You recently hired an economist to work with the engineering and operation experts to estimate the production function for a particular line of office chairs. The relevant production function is
Q = 6KL,
where Q represents the annual chair production, K represents capital equipment, and L is the number of labor hours worked per year. The marginal products of capital and labor are given as follows:
MPK = 6L MPL = 6K
Workers at the firm are paid a competitive wage of $7.50 per hour. The firm estimates a $30 per hour rental rate on capital. The operating budget for capital and labor is $300,000 per year.
Show your work please
1. What is the firm's optimal ratio of labor to capital?
2. Given the firm's $300,000 budget, how much capital and labor should the firm employ? How much output will the firm produce?
The state is planning to increase the minimum wage from $7.50 an hour to $15 an hour. Assuming that the firm intends to maintain its pre-increase in minimum wage output, how much capital and labor should the firm employ? What happens to the firm's cost as a result of the the increase in minimum wage?
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