Question

A manager hires labour and rents capital equipment in a very competitive market. Currently the wage rate is GH¢2 per hour and capital is rented at GH¢5 per hour, the unit price of the product is GH¢0.25 and total cost is 1000. Suppose the firm's production function is as follows: � = 14�*.,�*., + 10 i. What is the amount of labour and capital the firm should employ in order to maximize output? [Hint: Maximise the product function subject to the cost constraint] ii. What is the maximum profit?

Answer 1

Solution :

It is given that the manager hires a labor and he rents the capital equipment $\text{in a very competitive market}$.

Presently the rate of the wage is at $ 10 per hour and the capital is been rented at $ 0.25. If the $\text{marginal product}$ of the labor is 50 units of the output per hour and the marginal.

Therefore, the answer is

14 + 10 = 24