There are three companies - Ceramic, Pottery and Tile - producing mugs. The production function of mugs for Ceramic is given by Qc = 10K0.5 10.5, where K is hours of machine time and L is hours of labour employed. Pottery's production function of mugs is Qp = 10K0.6 10.4 and Tile's production function of mugs is QT = 20K0.6 10.5 a) Using a graph show how, ceteris paribus, an improvement in technology would affect Ceramic's production function. b) If all companies use the same amount of capital and labour, which will generate more output? Explain. c) Find the marginal product of capital and the marginal product of labour for each company. d) Assume that K = L = 2,000. Which company will benefit the most from increasing its labour? Which company will benefit the most from increasing its capital? Why? e) What type of returns to scale is each company exhibiting? Explain.

There are three companies - Ceramic, Pottery and Tile - producing mugs. The production function of mugs for Ceramic is given by Qc = 10K0.5 10.5, where K is hours of machine time and L is hours of labour employed. Pottery's production function of mugs is Qp = 10K0.6 10.4 and Tile's production function of mugs is QT = 20K0.6 10.5 a) Using a graph show how, ceteris paribus, an improvement in technology would affect Ceramic's production function. b) If all companies use the same amount of capital and labour, which will generate more output? Explain. c) Find the marginal product of capital and the marginal product of labour for each company. d) Assume that K = L = 2,000. Which company will benefit the most from increasing its labour? Which company will benefit the most from increasing its capital? Why? e) What type of returns to scale is each company exhibiting? Explain.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.7P

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