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Unformatted text preview: In-Class Group ExerciseA firm’s production function is given by 2121LKQ=and its capital is fixed at 1 unit.a.Calculate the average product of labor (APL) when 9 units of labor are utilized.391===LKQunits produced APL= Total Q / Total Labor (just the same avg you’ve known since middle school)Plugging in we get:3193==LAPb.Calculate the marginal product of labor (MPL) when 9 units of labor are utilized.Remember, (MPL) = ΔQ / ΔL = derivative of the function with respect to L.\2121LKQ=MPL=LKLKdLdQ1**2121/2/12/1==-, now plug in K=1 & L=9MPL=6131*2191*21/===dLdQ(so MPL= 1/6)c.Suppose the firm can hire labor at a wage of $10 per hour and output can be sold at a price of $100 per unit. Determine the profit-maximizing levels of laborand output.This is a 2-part problem: 1)The profit-maximizing point is the point where the value marginal product is equal to the wage (i.e. VMP = w). Hence, find the MPL such that VMP isequal to the wage2)Find what level of labor Lcorresponds to that MPLPart 1Recall that VMP = price * MP...
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- Fall '08
- Economics, $100, $250, $500 2, $250 3