Explore BrainMass
Share

Explore BrainMass

    maximum price of capital

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The manager of a national retailing outlet recently hired an economist to estimate the firm's production function. Based on the economist's report, the manager now knows that the firm's production function is given by Q = K^1/2L^1/2 and that capital is fixed at 1unit.

    a. Calculate the average product of labor when 9 units of labor are utilized.
    b. Calculate the marginal product of labor when 9 units of labor are utilized.
    c. Suppose the firm can hire labor at a wage of $10 per hour and output can be sold at a price of $100 per unit. Determine the profit-maximizing levels of labor and output.
    d. What is the maximum price of capital at which the firm will still make non-negative profits?

    © BrainMass Inc. brainmass.com October 9, 2019, 3:57 pm ad1c9bdddf
    https://brainmass.com/economics/production-function/maximum-price-of-capital-18156

    Solution Preview

    a. Calculate the average product of labor when 9 units of labor are utilized.
    <br>
    <br>average product of labor is APl = Q/L = (K^1/2 L^1/2)/L = L^ -1/2
    <br>when L=9, Apl= 9^ -1/2 = 1/3
    <br>
    <br>b. Calculate the marginal product of labor when 9 units of labor are utilized. ...

    Solution Summary

    What is the maximum price of capital at which the firm will still make non-negative profits?

    $2.19