Suppose that Gloucester Old Bank\'s customers can complete their transactions at

Question

Suppose that Gloucester Old Bank's customers can complete their transactions at a teller's window (involving labor) or at an ATM (involving capital). The production function for the bunk's services is given as follows: Q = 4k + 6L, where Q is the number of customers served, K is the number of ATMs the bank has installed in town, and L is the number of tellers the bank has hired. Suppose that installing and maintaining an ATM costs $20, and hiring a teller costs $32. If Gloucester Old Bank is interested in minimizing its costs, it should fire all of its tellers and use only ATMs. In the short run when capital is not adjustable, the marginal product of labor begins to decrease eventually. If the short-run production function for a firm is given by Q = 40L^2/3, then the average product of labor is given by AP_L = 40/L^1/3.

Explanation / Answer

9. In short run firm is not able to change all its factors and due to this firm's marginal product of labor begins to decrease eventually.

10. AP = TP/L = 40L2/3/L = 40 L(2/3 - 1) = 40L(-1/3) = 40/L1/3

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