a) You are a manager for Herman Miller, a major manufacturer of office furniture. You recently hired an economist to work with engineering and operations experts to estimate the production function for a particular line of office chairs. The report from these experts indicates that the relevant production function is Q = 2K0.5 10.5 Where: K represents capital equipment and L is labour. Your company has already spent a total of $9,000 on the 9 units of capital equipment it owns. Due to current economic conditions, the company does not have the flexibility needed to acquire additional equipment. Workers at the firm are paid a competitive wage of $100 per day and chairs can be sold for $400 each. i. ii. Is the firm operating in the short-run or the long-run? Explain. What is your profit-maximizing level of output and labour usage? What is your maximum profit resulting from your answer in (ii)?

a) You are a manager for Herman Miller, a major manufacturer of office furniture. You recently hired an economist to work with engineering and operations experts to estimate the production function for a particular line of office chairs. The report from these experts indicates that the relevant production function is Q = 2K0.5 10.5 Where: K represents capital equipment and L is labour. Your company has already spent a total of $9,000 on the 9 units of capital equipment it owns. Due to current economic conditions, the company does not have the flexibility needed to acquire additional equipment. Workers at the firm are paid a competitive wage of $100 per day and chairs can be sold for $400 each. i. ii. Is the firm operating in the short-run or the long-run? Explain. What is your profit-maximizing level of output and labour usage? What is your maximum profit resulting from your answer in (ii)?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter7: Production Economics

Section: Chapter Questions

Problem 8E

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