What are the profit-maximizing levels, Macroeconomics

Assignment Help:

Suppose Zippy's Banana Juice can produce according the following long-run production function.
Q = 5 L2 + 20 K - 0.4 K2
where Q is gallons of juice per hour, L is labor hours, and K is capital-hours. Assume you can purchase a combined total of 6 units of K and L.
The firm faces a market for inputs where PL = $25, PK = $40. Fixed costs are $50 per hour.

a. What are the profit-maximizing levels of K and L?

MPL/PL = MPK/PK
10L/25 = (20 - 0.8K)/40
Cross-multiply
400L = 500 - 20K
Divide by 20
20L + K = 25 (Equation #1)
Add constraint equation
L + K = 6 (Equations #2)
Solve two equations, two unknowns to get
L = 1, K = 5

b. What is the profit-maximizing Q?
Plug into the production function
Q = 5 L2 + 20 K - 0.4 K2
Q = 5 (1)2 + 20 (5) - 0.4 (5)2
Q = 5 + 100 - 10
Q = 95
Note: fixed costs do not affect the profit-maximizing level of L, K, or Q.

2. A publishing house uses two kinds of web content producers - writers (W) and poets (P). They produce web pages (Q) per day according to the production function
Q = 5W2 + 50P - 2P2

Writers and poets are paid the same, $100 per day. The company sells the web pages for $20. Thecompany has a daily budget of $800 to hire writers and poets. How many writers and poets should be hired?


Related Discussions:- What are the profit-maximizing levels

Average monthly total revenue from the sale, The Stop decay company sells a...

The Stop decay company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per month over the past year. Recently, its closest competitor, Decay fighter, redu

Money and Banking, What is the relationship between deposit multipier,Credi...

What is the relationship between deposit multipier,Credit Multiplier and Deposit multiplier?

Income increases at an average annual rate, Upon taking his first job at co...

Upon taking his first job at college your Dad earns an annual salary of $38,000 and set a goal to earn $10000 per year. If his salary increases at an average annual rate of 12% how

Show the investment function in the IS-LM model, Q. Show the investment fun...

Q. Show the investment function in the IS-LM model? The investment function in the IS-LM model Investment was an exogenous variable in cross model owing to the fact that

Calculate rental price of capital, Let the real interest rate, i r , equal ...

Let the real interest rate, i r , equal 5 percent and the rate of depreciation, d, equal 10 percent.  In this case, if the price of a piece of capital is P K = $10,000, what is th

Peace time goods and war time goods, Draw the PPC model of peace time goods...

Draw the PPC model of peace time goods and war time goods and describe its characteristics. Label point A as being more toward peace time goods than war time goods and show graphic

Explain production externality, Bob's Bee is a small boutique honey manufac...

Bob's Bee is a small boutique honey manufacturer in Texas.  Bob's neighbor is Jon's James.  The more honey Bob produces, the more jam Jon is able to produce; that is, there is

Summary of the phillips curves, Summary of the Phillips curves In neo-c...

Summary of the Phillips curves In neo-classical synthesis, augmented Phillips curve is known as the short-run Phillips curve. It is presumed to be stable as long as expectation

Potato chip industry in the northwest, In 2007, the potato chip industry in...

In 2007, the potato chip industry in the Northwest was competitively structured and in long-run competitive equilibrium; firms were earning a normal rate of return and were competi

Explain the term unit labor costs, An article published in Die Zeit on 25 M...

An article published in Die Zeit on 25 March 2010 analyses the German policy that allows for only moderate increases in wages. According to this article, the unit labor costs in Ge

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd