Question

Dave is going into the business of making refrigerators. He has estimated his production function to look like: Q=.1L^.5K^.5, where Q is number of refrigerators per week and L and K are the usual inputs of labor and capital. The current price of labor is $12/unit and the current price of capital is $3/unit. Dave has estimated demand to besuch that he will need to make 100 units per week and has built his factory (purchased K)to do so optimally.

Now that he is in the short run, how many refrigerators will Dave produce if he wakes upone week and finds that the market price of refrigerators is $240?

Answer 1