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December 19, 2014

December 19, 2014

Posted by **Bono** on Wednesday, October 22, 2008 at 2:04pm.

Suppose firms A and B each make T-shirts. Firm A's production function is q = L0.5 K0.5. Firm B's production function is q = 1.2 L0.5 K0.5.

a.If the two firms each hire the same amounts of capital and labor, compare the two firms in terms of their APL.

b.Given their MPL of 0.5 L-0.5 K0.5 and 0.6 L-0.5 K0.5 respectively, state which one can increase productivity of their labor force faster by increasing capital the same amount? .

c.Suppose Firm A has 125 units of K and 5 units of L. Firm B has 625 units of K and 25 units of L. Find out their APL.’s and MPL’s. What sets the difference between the firms in terms of average and marginal product of labor, their scale, or their technology?

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