PRODUCTION TUT SHEET 1.

Suppose a chair manufacturer is producing in the short run (with its existing plant and equipment). The manufacturer has observed the following levels of production corresponding to different numbers of workers: No of Workers No of Chairs 1 10 2 18 3 24 4 28 5 30 6 28 7 25

Calculate the marginal and average product of labor for this production function. 2. The estimated production function at a corn farm is given by Q = 100 K0.8L0.2 where the units for Q are bushels/week, for K are machine-hours/week, and for L are hours/week. Let w and r denote the price per unit of labor and capital, respectively a.) To minimize the cost of producing an output target Q, what optimizing rule should the farm manager follow? b.) Suppose w = 1 $/hour and r = 1 $/machine-hour. Find the cost-minimizing L and K choices for the output target Q=1380. c.) If w rises to 2 $/hour and r remains equal to 1, what are the new optimal K and L choices? 3. Do the following production functions have constant, increasing or decreasing returns of scale? a. q = 3L + 2K b. q = (2L + 2K)0.5 c. q = 3LK2 d. q = L0.5K0.5 e. q = 4L0.5+ 4K

4. Suppose that output of sweaters is characterized by a. b.

, where L denotes the number of worker hours employed and K denotes the number of sewing machines employed. Calculate the marginal rate of technical substitution What is the approximate value for the marginal rate of technical substitution MRTSLK at K = 100, L = 100? would the various values of the MRTS be changed as a result of this technical progress?

c. If technical progress shifted the production function to

5. Based on the data given below: No of Labor Output 0 0 1 50 2 110 3 390 4 520 5 580 6 630 7 650 8 650 9 640

a. At what point does diminishing return set in? b. Find the three stages of production.