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8_Solutions - College of Human Ecology Cornell University...

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College of Human Ecology Cornell University, Ithaca, New York Department of Policy Analysis and Management PAM 200 Intermediate Micro A. Sinan ¨ Un¨ur – Fall 2007 Short Answer Suppose the Greasy Burger Joint’s production function for hamburger’s is given by Quantity of Burgers = Q = 20 L S + 10 L U , where L S denotes the number of hours of work by skilled burger flippers and L U denotes the number of hours of work by unskilled burger flippers. That is, skilled and unskilled burger flippers are perfect substitutes in production and skilled workers are twice as productive as unskilled workers: MP L S = 20 and MP L U = 10 . The amount of capital the firm has is fixed: It can only choose the combination of skilled and unskilled workers it employs. Denote by w s the hourly wage rate for skilled workers and by w u the hourly wage rate of unskilled workers. Assume that the owner of the Greasy Burger Joint (GBJ) wants to minimize the cost of produc- ing burgers. Answer the following questions based on this information.
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