Question

Davy Metal Company has a new production technology for producing brass fittings and they have hired you to conduct an economic analysis. Davy's engineers estimated the following production function:q=2K/ where a measures the daily output of brass fittings in bundles, K measures the number of robotic assembly lines in operation on a given day and measures labor usage in hours of labor per day. Note: MPL= and MPK=2/1. The number of assembly lines in operation is fixed in the short run at K =4. The firm estimates that each assembly line has an economic cost of $750 per day to operate (r = 750). Davy's employees are highly skilled and have an economic cost of $24 per hour (w = 24). The retail market for brass fittings is competitive where the prevailing market price is $120 per bundle (p = 120). (a) Suppose the firm manager wishes to produce 80 bundles of brass fittings per day (a = 80). What is the total cost of meeting this production target in the short run? Total Cost = $ (b) Assuming all output is sold, what level of profit would a production target of 80 bundles per day generate for this firm in the short run? Profit = $ (c) The firm's marginal cost function is MC(q) = 0.759. Determine the optimal level of output (g) that maximizes this firm's profit in the short run. bundles (d) Assuming all output is sold, what level of profit would the optimal level of output generate for this firm in the short run? Profit = $ (e) Is this firm experiencing diminishing marginal product of labor in this problem? (Type Yes or No)

Answer 1

Profit - $120x160-TC. So To= $750x4 +24x400. 12,600 Profit= 19200 - 12600. - $6,600 So profit = $6,600. Here, mp - Shortrun K.4. K L So refus if; Lalo then. 4 MPLE 1.2649 rio na if; 2= 20 then MP,= 4 = 0.894. 50 Here 1-2 649 > 0.894.. So mp is diminis nishing return return to Scale . is correct option. So, yes