1: You are the management consultant hired by a small firm that builds and sells kitchen cabinets for residential properties. You have estimated that the firm's daily production function is given by Q = K^1/3L^1/3, where Q is the number of sets of cabinets produced per day, K is the number of industrial quality planer/molder machines rented per day, and L is the number of workers hired per day. The firm is currently committed to renting 1 machine at a cost of $100 per day for the next month. Adjustments in the number of machines used cannot be made for the next month. Workers cost $100 per day.

(a) If cabinet sets sell for $4000 each, what level of output would you recommend to maximize the firm's profits? How many workers would you hire?

(b) What would you recommend that the firm do in order to maximize its profits once it is free to adjust the number of machines it uses? Fully justify your recommendation.

Answer rating: 100% (QA)

a It is given that Q K 13 L 13 so Q L 13 when K 1 Profit Revenue Labour cost Capit... View the full answer