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panal2a

# panal2a - the jeans manufacturer acts to maximize profit...

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Additional Problem #3 Answers : Production Analysis A jeans manufacturer hires workers to sew jeans in its factory and derives the following daily yields of total product, or jeans output (in pairs): Factory Workers (day) TP (pairs) MP Total Value Product Total Input Cost Total Profit MVP MC Marginal Profit 0 0 \$ 0 \$ 0 \$ 0 1 5 5 150 90 60 \$150 \$ 90 \$ 60 2 15 10 450 180 270 300 90 210 3 20 5 600 270 330 150 90 60 4 23 3 690 360 330 90 90 0 5 24 1 720 450 270 30 90 - 60 6 23 -1 690 540 150 - 30 90 - 120 (a) Does this production function exhibit increasing, decreasing, constant returns, or some combination of the three ? from 0 – 2, then from 2 to 6, and actually negative for unit 6. (b) Assuming the price of jeans is \$30 per pair and each worker is paid \$90 per day, if
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Unformatted text preview: the jeans manufacturer acts to maximize profit, how many pairs of jeans will be produced? 23 How many workers will be employed? 4 What will the jean manufacturer's profit be at this output level? \$330 Why? (State the key condition used in your analysis and show all work in the table above.) Choose L so that (1) Max. Total Economic Profit = Max (TVP – TC, or ( 2 ) M V P = M C (c) Now assume that each worker's wage drops to \$30 per day. What is the new profit maximizing total output? 24 How many workers are hired at this level? 5 Why? Same as (b) (d) As a result of the input cost decrease specified in part (c), have profits risen or fallen? risen By how much have profits changed ? \$240...
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