ch7_example2 - You manage a plant that mass produces...

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You   manage   a   plant   that   mass   produces   engines   by   teams   of   workers   using  assembly machines.  The technology is summarized by the production function. q =  5  KL where  q  is the number of engines per week,  K  is the number of assembly machines,  and  L  is the number of labor teams.  Each assembly machine rents for  r  = \$10,000  per week and each team costs  w  = \$5,000 per week.  Engine costs are given by the  cost of labor teams and machines, plus \$2,000 per engine for raw materials.  Your  plant has a fixed installation of 5 assembly machines as part of its design. a. What is the cost function for your plant — namely, how much would it cost  to produce  q  engines?  What are average and marginal costs for producing  q  engines?  How do average costs vary with output? K is fixed at 5.   The short-run production function then becomes q = 25L.

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This note was uploaded on 04/07/2009 for the course ECON 302 taught by Professor Toossi during the Spring '08 term at University of Illinois at Urbana–Champaign.

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ch7_example2 - You manage a plant that mass produces...

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