Margeʹs Hair Salon production function is Q = f(K, L) = K0.5L0.5 where K is the number of hair dryers and L is the number of labour hours she employs. 2.1 Prove, with the aid of mathematics, the type of returns to scale exhibited by this production function. (2) 2.2 At the moment, Marge uses 16 labour hours and 16 hair dryers. Suppose that Marge can use any amount of either input without affecting the market costs of the inputs. If Marge increased her use of labour hours and hair dryers by 10%, how much would her production increase? (2) 2.3 Increasing the use of both inputs by 10% will result in Margeʹs costs increasing by exactly 10%. If Marge increases her use of all inputs by 10%, what will increase more, her production or her costs? (2)
Margeʹs Hair Salon production function is Q = f(K, L) = K0.5L0.5 where K is the number of hair dryers and L is the number of labour hours she employs. 2.1 Prove, with the aid of mathematics, the type of returns to scale exhibited by this production function. (2) 2.2 At the moment, Marge uses 16 labour hours and 16 hair dryers. Suppose that Marge can use any amount of either input without affecting the market costs of the inputs. If Marge increased her use of labour hours and hair dryers by 10%, how much would her production increase? (2) 2.3 Increasing the use of both inputs by 10% will result in Margeʹs costs increasing by exactly 10%. If Marge increases her use of all inputs by 10%, what will increase more, her production or her costs? (2)
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 7E
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Margeʹs Hair Salon production function is Q = f(K, L) = K0.5L0.5 where K is the number of hair dryers and L is the number of labour hours she employs.
2.1 Prove, with the aid of mathematics, the type of returns to scale exhibited by this production function. (2)
2.2 At the moment, Marge uses 16 labour hours and 16 hair dryers. Suppose that Marge can use any amount of either input without affecting the market costs of the inputs. If Marge increased her use of labour hours and hair dryers by 10%, how much would her production increase? (2)
2.3 Increasing the use of both inputs by 10% will result in Margeʹs costs increasing by exactly 10%. If Marge increases her use of all inputs by 10%, what will increase more, her production or her costs? (2)
2.4 Given that Marge earns R12.50 for each unit produced, do her profits go up or down when she increases her input use by 10%? (4)
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