roduction func Wild, a small catering compan hy 2. The table below represents th

Question

roduction func Wild, a small catering compan hy 2. The table below represents the tion for Hawg Wild, a small catering The numbers in specializing in barbecued pork. The n the cells represent the number of customers can bor and capital. rs that be served with various combinations of la- Labor (L) 1 100 132 155 174 190 205 2 152 200 235 264 289 310 3 193255 300 337 368 396 4 230 303 357 400 437 470 5 263 347 408 457 500 538 6 293387 455 510 558 600 Capital a. Is this production function a short-run or long-run production function. How can you tell? b. Suppose that Hawg Wild employs 5 units of capital and 2 workers. How many diners will of wner be served? c. Suppose that Hawg Wild employs 5 units capital and 2 workers, but that the ow

Explanation / Answer

Ans a) this production function is long run production function because both the factors of production used in the production are variable and changing and there is no fixed input which is possible only in long run. Only in long run we can change capital

Ans b) 347 ( can be read from table when k= 5And L= 2

And c) if Billy's nephew will be added than L= 3 and 408 units will be produced

So additional output or marginal output or product of Billy's nephew will be 408- 347= 61

Ans d) no this does not violate law of diminishing marginal product of labor, because here capital is changing therefore marginal product is changing and increasing whereas above law says that marginal product of additional labor used with fixed amount of capital goes on decreasing as we go on adding more and more labor. This law does not apply here as here capital is not fixed and labour is fixed and marginal product is increasing due to change in units of capital used.

Ans e

If K will increase to 6 and labor used is 2, 387 units will be produced, so marginal product of capital will be 40

Ans f at this MP of L is 61 and MP of K is 40

And prices of K and L are given

By spending 1$ on capital, MP will increase by 40/8 = 5

Whereas spending on labor $1, MP will increase by 61/12= 5.08

So it is more profitable and cost effective to employ one more labor

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