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Managerial Econ Problems

The document discusses production functions and costs for various companies. It includes production tables and calculations for total, marginal, and average products. Questions cover topics like optimal employment levels, marginal rates of technical substitution, and determining optimal input levels to maximize output or profits.

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rocky1
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78 views3 pages

Managerial Econ Problems

The document discusses production functions and costs for various companies. It includes production tables and calculations for total, marginal, and average products. Questions cover topics like optimal employment levels, marginal rates of technical substitution, and determining optimal input levels to maximize output or profits.

Uploaded by

rocky1
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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OPEN CAMPUS Managerial Economics (MGMT2020) Semester I 2011/12 Due: October 21, 2011 (Graded) Bonus marks (10%):

Submit before Oct. 19, 2011 1. Carefully explain why the marginal product of labour (MPL) first rises and then falls as use of labour increases. In which portion of the MPL curve will the firm typically produces? (10 marks) 2. a) Complete the following table and identify the stages and phases of production: (03 marks) K L TP MPL APL (capital) (labour) (total product) (marginal product) (marginal product) 5 0 0 5 1 20 5 2 45 5 3 75 5 4 110 5 5 130 5 6 140 5 7 140 5 8 135 b) A fishing company conducted a series of experiment to determine the amount of fish that could be caught. The results are: Fishermen 1 2 3 4 5 6 7 8 9 10 11 Fish (lbs.) 1 4 24 48 70 90 98 104 104 102 99 (04 marks)

(i) Calculate the total, marginal and average product.

(ii) Suppose the price for a lb. of fish is $10 and wage rate is $60, how many fishermen should be employed to be optimal? (06 marks)
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3. Chemco uses 25 workers and 50 machines to produce its product. The MP L of the last worker is 73 units of output/day; the MPM of the last machine is 240 units of output/day. The daily paid for each worker is EC$30 and the rental of each machine is EC$100/day. a) What is the MP per dollar spent on a worker? b) What is the MP per dollar spent on machine? c) Is Chemco utilizing workers and machines in the costminimizing manner? (03 marks) (03 marks) (04 marks)

4. Compare and contrast the stages and phases of production with the aid of a diagram (10 marks) 5. The production function for Open Bottle is Q = 25L0.25 K0.75 a) What is the marginal product of labour? b) What is the average product of labour? c) What is the marginal product of capital? d) What is the average product of capital? (01 mark) (01 mark) (01 mark) (01 mark)

e) Calculate the MRTS; given that price of labour is $50 and price of capital is $90. (06 marks) 6. Dirt Diggers (DD) is a firm that excavates roadside ditches for laying drainpipes. Its output follows the production function Q = 10L 0.1L2; where L denotes labour hours and Q the length of the ditch in metres. The firm hires labour at a wage of $12 per hour. Hint: MRP L = MRCL; find the factors. a) DD has received an offer to excavate 250 metres for a price of $500. Should DD accept the offer? (04 marks) b) What offer would be profitable? (06 marks)

7. a) The Open Chemical Ltd obtained the following estimate of the firms Production (Leontief production function): Q = F(K, L) = min {10.4K, 11L} How much output is produced when 22 units of labour and 19 units of capital are employed? (04 marks) b) Prove the following (K = capital and L = labour): (i) K/L = MPL/MPK; (02 marks)
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7b (continued) (ii) The sum of the exponents of labour and capital in a CobbDouglas production function measures the returns to scale; and (02 marks) (iii) The exponents a and b of a production function Q = ALaKb are estimates of the output elasticities of labour and capital respectively. (02 marks) 8. UWIDEC production function is lnQ = 4.73 + 0.29lnK + 0.68.98lnL a) Convert the production function into its normal form. b) What is the firms output elasticity and returns to scale? Explain. (04 marks) (06 marks)

9. Ear Us (producer of hitech hearing aid) production function is Q = K0.5L0.5. The company over the years uses input rates of 60 and 120 for capital and labour respectively. The price of capital is $50 and labour is $25 per telephone. a) Is there efficiency in production? Why? b) If $100,000 is allocated to production, what is the maximum output? (04 marks) (06 marks)

10. A new footwear manufacturing company commenced business in St. Vincent and its production function is Q = 85KL2. Given that the price of labour is EC$20 and the MRTS is K = 1.5L a) What is the price of capital? (04 marks)

b) If the desired output is 2,500 units, how many units of capital and labour will be used? (06 marks)

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