You are a manager for Herman Miller, a major manufacturer of office furniture. You recently hired an economist to work with engineering and operations experts to estimate the production function for a particular line of office chairs. The report from these experts indicates that the relevant production function is Q = 2(K)/2(L)1/2 Marginal Product of Labor MPL= K1/2L1/2 where K represents capital equipment and Lis labor. Your company has already spent a total of $11,000 on the 5 units of capital equipment it owns. Due to current economic conditions, the company cannot increase capital and therefore capital (K) is fixed at 5 units. Workers at the firm are paid a competitive wage of $80 per day and chairs can be sold for $500 each. (a) What is the profit-maximizing level of labor usage (profit maximizing number of workers)? (b) What is the output when the profit maximizing number of workers are hired?

You are a manager for Herman Miller, a major manufacturer of office furniture. You recently hired an economist to work with engineering and operations experts to estimate the production function for a particular line of office chairs. The report from these experts indicates that the relevant production function is Q = 2(K)/2(L)1/2 Marginal Product of Labor MPL= K1/2L1/2 where K represents capital equipment and Lis labor. Your company has already spent a total of $11,000 on the 5 units of capital equipment it owns. Due to current economic conditions, the company cannot increase capital and therefore capital (K) is fixed at 5 units. Workers at the firm are paid a competitive wage of $80 per day and chairs can be sold for $500 each. (a) What is the profit-maximizing level of labor usage (profit maximizing number of workers)? (b) What is the output when the profit maximizing number of workers are hired?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter22: Supply: The Costs Of Doing Business

Section: Chapter Questions

Problem 11E

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You are a manager for Herman Miller—a major manufacturer of office furniture. You recently hired an economist to work with engineering and operations experts to estimate the production function for a particular line of office chairs. The report from these experts indicates that the relevant production function is:Q = 2(K)1/2(L)1/2where K represents capital equipment and L is labor. Your company has already spent a total of $8,000 on the 9 units of capital equipment it owns. Due to current economic conditions, the company does not have the flexibility needed to acquire additional equipment. If workers at the firm are paid a competitive wage of $120 and chairs can be sold for $400 each, what is your profit-maximizing level of output and labor usage?Output: Labor: What is your maximum profit?$
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