A small company produces and sells two types of products: product A and product B. The company
Question:
A small company produces and sells two types of products: product A and product B. The company has a total of 300 units of labor and 100 units of capital available for production. The production function for each product is given by:
- Product A: QA = 6(LA)^0.4(KA)^0.6
- Product B: QB = 3(LB)^0.5(KB)^0.5
where QA and QB are the quantities of product A and product B produced, LA and LB are the amounts of labor used in production, KA and KB are the amounts of capital used in production.
The price of product A is $8 per unit and the price of product B is $12 per unit. The company wants to maximize its total revenue subject to the resource constraints.
a) Write the mathematical expression for the company's revenue function.
b) Determine the optimal amount of labor and capital that should be used to maximize the company's revenue. What is the maximum revenue that the company can generate?
Cost Management Measuring Monitoring And Motivating Performance
ISBN: 9781118168875
2nd Canadian Edition
Authors: Leslie G. Eldenburg, Susan Wolcott, Liang Hsuan Chen, Gail Cook