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    Pcu Topic Number 4 Activity

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    Ailyn S. Bulatao
    This document contains 5 topics related to production processes and costs. Topic 1 discusses how labor unions may react to investment tax credits for businesses. Topic 2 provides a production function example using capital and labor to produce sirloin steak. Topic 3 gives another production function example and asks questions about labor utilization. Topic 4 examines costs at different output levels based on a cost function. Topic 5 defines constant returns to scale and asks about associated cost curves.

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    Pcu Topic Number 4 Activity

    Uploaded by

    Ailyn S. Bulatao
    17 views1 page
    This document contains 5 topics related to production processes and costs. Topic 1 discusses how labor unions may react to investment tax credits for businesses. Topic 2 provides a production function example using capital and labor to produce sirloin steak. Topic 3 gives another production function example and asks questions about labor utilization. Topic 4 examines costs at different output levels based on a cost function. Topic 5 defines constant returns to scale and asks about associated cost curves.

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    PCU TOPIC NUMBER 4 ACTIVITY (1)

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    This document contains 5 topics related to production processes and costs. Topic 1 discusses how labor unions may react to investment tax credits for businesses. Topic 2 provides a production function example using capital and labor to produce sirloin steak. Topic 3 gives another production function example and asks questions about labor utilization. Topic 4 examines costs at different output levels based on a cost function. Topic 5 defines constant returns to scale and asks about associated cost curves.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    17 views1 page

    Pcu Topic Number 4 Activity

    Uploaded by

    Ailyn S. Bulatao
    This document contains 5 topics related to production processes and costs. Topic 1 discusses how labor unions may react to investment tax credits for businesses. Topic 2 provides a production function example using capital and labor to produce sirloin steak. Topic 3 gives another production function example and asks questions about labor utilization. Topic 4 examines costs at different output levels based on a cost function. Topic 5 defines constant returns to scale and asks about associated cost curves.

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    © All Rights Reserved
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    of 1

    TOPIC NUMBER 4 ACTIVITY: PRODUCTION PROCESS AND COST

    1. Congress is considering legislation that will provide additional investment tax credits to
    businesses. Effectively, an investment tax credit reduces the cost to firms of using capital in
    production. Would you expect labor unions to lobby for or against such a bill? (Hint: What
    impact would such a plan have on the capital-to-labor ratio at the typical firm?)

    2. The manager of a meat-packing plant can use either butchers (labor) or meat saws (capital)
    to prepare packages of sirloin steak. Based on estimates provided by an efficiency expert, the
    firm's production function for sirloin steak is given by Q = K + L
    a. Graph the isoquant corresponding to 5 units of output.
    b. What is the marginal product of capital and labor? Does the answer depend on how much
    labor and capital are used?
    c. If the price of labor is $2 per hour and the rental price of capital is $3 per hour, how much
    capital and labor should be used to minimize the cost of producing 5 units of output?

    3. The manager of a national retailing outlet recently hired an economist to estimate the firm's
    production function. Based on the economist's report, the manager now knows that the firm's
    production function is given by and that capital is fixed at 1 unit.
    a. Calculate the average product of labor when 9 units of labor are utilized.
    b. Calculate the marginal product of labor when 9 units of labor are utilized.
    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 labor and output.
    d. What is the maximum price of capital at which the firm will still make nonnegative profits?

    4. An accountant for a car rental company was recently asked to report the firm's costs of
    producing various levels of output. The accountant knows that the most recent estimate
    available of the firm's cost function is , where costs are measured in
    thousands of dollars and output is measured in thousands of hours rented.
    a. What is the average fixed cost of producing 2 units of output?
    b. What is the average variable cost of producing 2 units of output?
    c. What is the average total cost of producing 2 units of output?
    d. What is the marginal cost of producing 2 units of output?
    e. What is the relation between the answers to (a), (b), and (c) above? Is this a general property
    of average cost curves?

    5. A production function exhibits constant returns to scale if a twofold (threefold, etc.) increase
    in all inputs leads to a twofold (threefold, etc.) increase in output. For example, by doubling the
    use of capital and labor, the firm would exactly double its output.
    a. What would the average and marginal cost curves look like under constant returns to scale?
    Explain.
    b. Give an example of a production function that exhibits constant returns to scale.

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