What effect will this have on the firm optimal output

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Reference no: EM13145451

Making dresses in a labor intensive process. Indeed, the production function of a dress making firm is well described by the equation Q=L - L^2/800, where Q denotes the number of dresses per week and L is the number of labor hours per week. The firms cost of hiring an extra hour of labor is $20 per hour (wage plus fringe benefits.) The firm faces the fixed selling price, P = $40. a.) How much labor should the firm employ? What are its resulting output and profit? b.) Over the next 2 years, labor costs are expected to be unchanged, but dress prices are expected to increase to $50. What effect will this have on the firm's optimal output? Explain.

Reference no: EM13145451

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