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 = 2(K)/2(L)1/2 Marginal Product of Labor MPL= K1/2L1/2 where K represents capital equipment and Lis labor. Your company has already spent a total of $11,000 on the 5 units of capital equipment it owns. Due to current economic conditions, the company cannot increase capital and therefore capital (K) is fixed at 5 units. Workers at the firm are paid a competitive wage of $80 per day and chairs can be sold for $500 each. (a) What is the profit-maximizing level of labor usage (profit maximizing number of workers)? (b) What is the output when the profit maximizing number of workers are hired?
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 = 2(K)/2(L)1/2 Marginal Product of Labor MPL= K1/2L1/2 where K represents capital equipment and Lis labor. Your company has already spent a total of $11,000 on the 5 units of capital equipment it owns. Due to current economic conditions, the company cannot increase capital and therefore capital (K) is fixed at 5 units. Workers at the firm are paid a competitive wage of $80 per day and chairs can be sold for $500 each. (a) What is the profit-maximizing level of labor usage (profit maximizing number of workers)? (b) What is the output when the profit maximizing number of workers are hired?
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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