Calculating profit maximizing output and elasticity
Not what you're looking for?
The firm's production function for gadgets, X, depends on the amounts of capital (K), and labor (L) employed:
X = 56K + 8.8L - 2K2 - 0.1L2.
(a) If the firm can sell any output at a price equal to 10, if the wage rate per unit of labor is 8 and the rental per unit of capital is 80, what is the profit maximizing level of output?
(b) At the optimum solution in (a), what is the value of the marginal rate of technical substitution in production?
(c) If the firm maximizes profit at a higher wage rate of 10 (all other parameters unchanged), what is the firm's elasticity of demand for labor over this wage range?
Purchase this Solution
Solution Summary
Solution describes the steps for calculating profit maximizing output and elasticity of demand for a firm.
Solution Preview
Solution:
(a) If the firm can sell any output at a price equal to 10, if the wage rate per unit of labor is 8 and the rental per unit of capital is 80, what is the profit maximizing level of output?
Marginal Product of labor=MPL=dX/dL=8.8-0.2L
Marginal Revenue of labor=MRL=Price*MPL=10*(8.8-0.2L)=88-2L
Marginal cost of labor=MLC=wage ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
- "Thank you"
- "Really great step by step solution"
- "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
- "Thanks Again! This is totally a great service!"
- "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.