Suppose that you have estimated the following output function where L is labor and K is capital:
Question:
Suppose that you have estimated the following output function where L is labor and K is capital: Y = 2K^⅓*L^1/3
You know that the current price of labor is $13 and capital cost is $1 per per machine (capital). You currently use 27 units (machines) of capital. The price of the output is $60
Using an excel spreadsheet, display all formulas:
a) Given a fixed level of capital (K=27), and a price of $60 per unit of output (output is represented by Y), how many employees (L) will you hire to maximize profit?
b) Given a fixed level of capital (K=27), and a price of $60 per unit of output, what is the level of output you will produce?
c) Calculate the profit given the optimal number of employee given the answer in #2a.
d) At What number of employees would you maximize output but not lose money?
e) If the Wage Rate Rose to $12.50, what would be the possible outcomes to L, P, and Profit?
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba