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Unformatted text preview: ucsc econ/ams 11b Review Questions 9 Final Review 1. The annual output for a discount hotel chain is given by Q = 30 K 2 / 5 L 1 / 2 R 1 / 4 , where K , L and R are the capital, labor and real estate inputs, all measured in $1 , 000 , 000s, and Q is measured in rooms rented. a. What is the annual output when the inputs are K = 20, L = 15 and R = 5? b. Use linear approximation to estimate the change in output if if capital input remains fixed, labor input increases by $750 , 000 and real estate input increases by $500 , 000? 2. The hotel chain from problem 1. has an annual budget of B = $69 million. a. How should they allocate this budget to the three inputs in order to maximize their annual output? What is the maximum output? b. What is the critical value of the multiplier when output is maximized? c. Use your answer to b. to compute the approximate change in the firm’s maximum output if their annual budget increases by $500 , 000? Explain your answer....
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- Spring '08