Bob the builder, a contractor, uses hired labor and equipment to add verandas to his client's homes. The market for verandas is perfectly competitive. Bob’s production function is q = 12L!/³K!/3. Suppose the wage rate is $1,000 while the rental cost of equipment is $8,000.

Bob the builder, a contractor, uses hired labor and equipment to add verandas to his client's homes. The market for verandas is perfectly competitive. Bob’s production function is q = 12L!/³K!/3. Suppose the wage rate is $1,000 while the rental cost of equipment is $8,000.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Proudction Costs

Section: Chapter Questions

Problem 2SQ

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Question

a) Find Bob the builder’s total cost function. Use the cost minimization conditions to find Bob the builder’s conditional demand for labor L^(q) and equipment K^(q).

b) Substitute the conditional demand for labor and equipment and the current wage rate and rental cost of equipment in the expression TC = wL^(q) + rK^(q).

c) Suppose Bob charges $4,000 for each veranda, how many verandas does he build? How many workers does he hire? How many pieces of equipment does he rent?

Problem 4 (review cost minimization)
Bob the builder, a contractor, uses hired labor and equipment to add verandas to his client's homes. The market for verandas is perfectly
competitive. Bob's production function is q = 12L!/³K!/3, Suppose the wage rate is $1,000 while the rental cost of equipment is $8,000.

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