What are the profit-maximizing levels, Macroeconomics

Suppose Zippy's Banana Juice can produce according the following long-run production function.
Q = 5 L2 + 20 K - 0.4 K2
where Q is gallons of juice per hour, L is labor hours, and K is capital-hours. Assume you can purchase a combined total of 6 units of K and L.
The firm faces a market for inputs where PL = $25, PK = $40. Fixed costs are $50 per hour.

a. What are the profit-maximizing levels of K and L?

MPL/PL = MPK/PK
10L/25 = (20 - 0.8K)/40
Cross-multiply
400L = 500 - 20K
Divide by 20
20L + K = 25 (Equation #1)
Add constraint equation
L + K = 6 (Equations #2)
Solve two equations, two unknowns to get
L = 1, K = 5

b. What is the profit-maximizing Q?
Plug into the production function
Q = 5 L2 + 20 K - 0.4 K2
Q = 5 (1)2 + 20 (5) - 0.4 (5)2
Q = 5 + 100 - 10
Q = 95
Note: fixed costs do not affect the profit-maximizing level of L, K, or Q.

2. A publishing house uses two kinds of web content producers - writers (W) and poets (P). They produce web pages (Q) per day according to the production function
Q = 5W2 + 50P - 2P2

Writers and poets are paid the same, $100 per day. The company sells the web pages for $20. Thecompany has a daily budget of $800 to hire writers and poets. How many writers and poets should be hired?

Posted Date: 3/29/2013 6:31:28 AM | Location : United States







Related Discussions:- What are the profit-maximizing levels, Assignment Help, Ask Question on What are the profit-maximizing levels, Get Answer, Expert's Help, What are the profit-maximizing levels Discussions

Write discussion on What are the profit-maximizing levels
Your posts are moderated
Related Questions
Marginal cost curves generally slope: a) downward because of decreasing opportunity cost b) upward because of decreasing opportunity cost c) downward because of increasing opp

distnguish betweenNational income at market price and National Income at factor cost, explain the importance of the distinction

outline two main restrictions by indian government applied to import. Using the data from your case study analyse and explain who would benefit directly and who would lose directly

WHAT IS THE CENTRAL PROPOSITION OF THE ORTHODOX KEYNESNIANS?

Q. Illustrate neo-classical growth model? The main purpose of another significant growth model, neo-classical growth model, is to explain how it is possible to have a permanent

We will continue with the familiar demand curve homework the previous section Let the market demand for goods be with a linear curve:    (p =A q D /10), where it is known

Aggregate demand with inflation In previous versions of Keynesian model, Components of aggregate demand did not depend on P. In IS-LM and in AS-AD models, investments depended

State the term- - GDP is a flow Lastly, note that GDP is a flow variable and not a stock variable. By a flow variable we mean a variable which is measured in something per uni

In order to observe the correlations between each variable, the most effective method to use is Vector Autoregression (VAR). VAR estimation uses a system of simultaneous equations

One problem in using exchange rate when comparing GDP per capital between countries is that is fluctuates a lot. A way of avoiding dependence on exchange rate is to use purchasing