1 Labor Demand Suppose that Wakanda Bakery has the following Cobb-Douglas Production Function: Y=K²E}, where K represents the units of capital employed, E is the number of employee hours employed, and Y is total production. Wakanda Bakery is bound by the minimum wage of the land and pays USD 15 per hour and the cost of capital, r, is equal to 1920 per unit. The firm faces 1 unit of capita that cannot be changed. 1. Wakanda Bakery is currently employing 8 hours of labor. Calculate the Total cost and Average cost of the firm. 2. Calculate the marginal products of labor and capital, then find the marginal cost. 3. Calculate the Marginal Rate of Technical Substitution. Is Wakanda Bakery "behaving" optimally? Why/why not? 4. Suppose that instead of employing 8 hours of labor, the firm instead hires 64 hours. Show the new marginal products of labor and capital. 5. Calculate the new MRTS. Is Wakanda Bakery "behaving" optimally at with this new number of hired employee hours? Why/why not?
1 Labor Demand Suppose that Wakanda Bakery has the following Cobb-Douglas Production Function: Y=K²E}, where K represents the units of capital employed, E is the number of employee hours employed, and Y is total production. Wakanda Bakery is bound by the minimum wage of the land and pays USD 15 per hour and the cost of capital, r, is equal to 1920 per unit. The firm faces 1 unit of capita that cannot be changed. 1. Wakanda Bakery is currently employing 8 hours of labor. Calculate the Total cost and Average cost of the firm. 2. Calculate the marginal products of labor and capital, then find the marginal cost. 3. Calculate the Marginal Rate of Technical Substitution. Is Wakanda Bakery "behaving" optimally? Why/why not? 4. Suppose that instead of employing 8 hours of labor, the firm instead hires 64 hours. Show the new marginal products of labor and capital. 5. Calculate the new MRTS. Is Wakanda Bakery "behaving" optimally at with this new number of hired employee hours? Why/why not?
Chapter11: The Firm: Production And Costs
Section: Chapter Questions
Problem 15P
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Transcribed Image Text:1 Labor Demand
Suppose that Wakanda Bakery has the following Cobb-Douglas Production Function:
Y = K³E\,
where K represents the units of capital employed, E is the number of employee hours employed, and
Y is total production. Wakanda Bakery is bound by the minimum wage of the land and pays USD
15 per hour and the cost of capital, r, is equal to 1920 per unit. The firm faces 1 unit of capita that
cannot be changed.
1. Wakanda Bakery is currently employing 8 hours of labor. Calculate the Total cost and Average
cost of the firm.
2. Calculate the marginal products of labor and capital, then find the marginal cost.
3. Calculate the Marginal Rate Technical Substitution. Is Wakanda Bakery "behaving"
optimally? Why/why not?
4. Suppose that instead of employing 8 hours of labor, the firm instead hires 64 hours. Show the
new marginal products of labor and capital.
5. Calculate the new MRTS. Is Wakanda Bakery "behaving" optimally at with this new number
of hired employee hours? Why/why not?
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