Suppose a Cobb-Douglas Production function is given by the following: P(L, K) = 80L0.8K0.2 where I is units of labor, K is units of capital, and P(L, K) is total units that can be produced with this labor/capital combination. Suppose each unit of labor costs $100 and each unit of capital costs $400. Further suppose a total of $120,000 is available to be invested in labor and capital (combined). A) How many units of labor and capital should be "purchased" to maximize production subject to your
Suppose a Cobb-Douglas Production function is given by the following: P(L, K) = 80L0.8K0.2 where I is units of labor, K is units of capital, and P(L, K) is total units that can be produced with this labor/capital combination. Suppose each unit of labor costs $100 and each unit of capital costs $400. Further suppose a total of $120,000 is available to be invested in labor and capital (combined). A) How many units of labor and capital should be "purchased" to maximize production subject to your
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter7: Production Economics
Section: Chapter Questions
Problem 7E
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How many units of labor and capital should be purchased to maximize production? What is the maximum number of units of production?
Transcribed Image Text:Suppose a Cobb-Douglas Production function is given by the following:
P(L,K) = 80L0.8 K-0.2
where I is units of labor, K is units of capital, and P(L, K) is total units that can be produced with this
labor/capital combination. Suppose each unit of labor costs $100 and each unit of capital costs $400.
Further suppose a total of $120,000 is available to be invested in labor and capital (combined).
A) How many units of labor and capital should be "purchased" to maximize production subject to your
budgetary constraint?
Units of labor, L = 600
Units of capital, K =
150
X
Max production = 36377
X
B) What is the maximum number of units of production under the given budgetary conditions? (Round your
answer to the nearest whole unit.)
X units
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