Question

(20 points) Frank wants to go into the donut business. For $500 per month he can rent a bakery complete with all the equipment he needs to make a dozen different kinds of donuts (K-1,r-500). He must pay unionized donut bakers a monthly salary of $400 each. He projects his monthly production function to be q-5LK, where q is tons of donuts. 4. With the current level of capital, derive the total product of labor and the marginal product of labor? Is the marginal product diminishing? Explain If Frank wishes to make 25 tons of donuts, how many bakers are required given the current level of capital? What is the total cost to produce this level of output? a. b. c. Derive Frank's short-run cost function with K 1. d. Derive the marginal cost curve from your answer to (c) and show the relationship between the marginal cost and margınal product of labor

Answer 1

wfen K-1 0 aL 3o MPL s Cons tant.

CN = 400 d)|| MC= OC = 400 =80