Economics

posted by .

4 (ii) You manage Dirt Diggers, an excavating firm that excavates
roadside ditches for laying drainpipes. Its output follows the
production function:
Q = 10L -.1L2
where L denotes labor hours and Q the length of the ditch in meters. You
can hire labor at the going wage rate of $12 per hour. As the manager of
DD you want to earn as high a profit as possible.
(a) You have received an offer to excavate 250 meters for a lump sum
payment of $500. Should you accept the offer ? Explain with
appropriate calculations.

(b) Suppose that instead of the previous offer, you are now offered as
much or as little excavation work at a price of $2.00 per meter dug.
Should you accept the offer ? Why or why not ? If you accept the
offer calculate DD’s resulting profit. Also, calculate the optimal level
of output (meter dug) and the level of labor usage.

(iii) As a manager of a firm you find the marginal cost of the firm to be $10 and
the fixed cost $100. For the range of prices that you are planning to charge,
own price elasticity of demand is believed to be –1.5. Calculate the optimal
(profit maximizing) price that you should charge. Show all calculations.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. lavin

    A firm has the following short-run production function: Q = 100L + 10L2 - 0.7L3 Where Q = quantity of output per week; L = Labor (number of workers) a. When does the law of diminishing returns take effect?
  2. Economics

    Consider the production function Q = 20K 1/2 L 1/2. The firm operates in the short run with 100 units of capital. a. The firm’s short-run production function is Q = __________. c. The average product of labor function is AP = __________. …
  3. Economics

    Consider a profit maximizing competitive firm with the following production function: y=L^α+K^β where 0 <α< 1 and 0 <β< 1. The firm can purchase labor (L) and capital (K) it wants in competitive input …
  4. managerial economics

    Consider the following short-run production function (where L = variable input, Q =output): Q = 10L - 0.5L2 Suppose that output can be sold for $10 per unit.
  5. economics

    The cost function for an enterprise has the following form: TC = 10L + 20K The production function has the form: 4 ln L + 10 K 1/2 a. Derive the mathematical forms of the marginal and average products of capital and labor. How is the …
  6. economics

    You are planning to estimate a short- run production function for your firm, and you have collected the following data on labor usage (L) and output (Q): Labor usage Output 3 1 7 2 9 3 11 5 17 8 17 10 20 15 24 18 26 22 28 21 30 23
  7. Math/Economics

    Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers it produces 90 units of output. Fixed cost of production are $6 and the variable cost per unit of labor …
  8. Math/Economics

    Suppose that a firm has only one variable input, labor, and firm output is zero when labor is zero. When the firm hires 6 workers it produces 90 units of output. Fixed cost of production are $6 and the variable cost per unit of labor …
  9. Math (UBC)

    Economists use production functions to describe how output of a system varies with another variable such as labour or capital. For example, the production function P(L) = 200L + 10L^2 - L^3 goves the output of a system as a function …
  10. Math Calculus

    Economists use production functions to describe how output of a system varies with another variable such as labour or capital. For example, the production function P(L) = 200L + 10L^2 - L^3 goves the output of a system as a function …

More Similar Questions