A small clothing manufacturer employs a production method that is approximated by the following production function: q=12KL², where L measures the number of labor hours and K measures the number of rental hours for the machines used in the clothing construction process. Does this production process exhibit increasing, decreasing, or constant returns to scale? Briefly explain your answer. The hourly wage rate for workers at this company is $15; and the rental cost on the machines is $75 per hour. The company has a total budget of $3,150 that it can allocate to cover weekly production costs. The goal of the company's owner is to maximize their output, subject to the constraint of their production budget. Determine the output-maximizing levels of labor and capital the owner will employ.
A small clothing manufacturer employs a production method that is approximated by the following production function: q=12KL², where L measures the number of labor hours and K measures the number of rental hours for the machines used in the clothing construction process. Does this production process exhibit increasing, decreasing, or constant returns to scale? Briefly explain your answer. The hourly wage rate for workers at this company is $15; and the rental cost on the machines is $75 per hour. The company has a total budget of $3,150 that it can allocate to cover weekly production costs. The goal of the company's owner is to maximize their output, subject to the constraint of their production budget. Determine the output-maximizing levels of labor and capital the owner will employ.
Chapter9: Production Functions
Section: Chapter Questions
Problem 9.9P
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Transcribed Image Text:A small clothing manufacturer employs a production method that is approximated by the
following production function: q=12KL², where L measures the number of labor hours
and K measures the number of rental hours for the machines used in the clothing
construction process. Does this production process exhibit increasing, decreasing, or
constant returns to scale? Briefly explain your answer. The hourly wage rate for workers
at this company is $15; and the rental cost on the machines is $75 per hour. The company
has a total budget of $3,150 that it can allocate to cover weekly production costs. The goal
of the company's owner is to maximize their output, subject to the constraint of their
production budget. Determine the output-maximizing levels of labor and capital the owner
will employ.
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