30 Apr Question: C) Davy metal company produces brass fittings. Davy’s engineers estimate the production function …
Show transcribed image textc) Davy metal company produces brass fittings. Davy’s engineers estimate the production function represented below as relevant for their long run capital-labor decisions. where O-annual output measured in kilograms L- labor measured in person hours Kcapital measured in machine hours Davy’s employees are relatively highly skilled and earn S15 per hour. The firm estimates a rental charge of $50 per hour on capital. Davy forecasts annual costs of S500,000 per year, measured in dollars. i Derive the firm’s marginal product of labor (MP) and marginal product of capital (MPk) equations (4 marks)
BEEB2013 MICROECONOMICS SECOND SEMESTER 2017/2018 SESSION MATRIC NO ii) How much capital and labor should the firm employ 5 marks) ii) Davy is currently negotiating with a new organized union. The firm’s personnel manager indicates that the wage may rise to $22.50 under the proposed union contract. Analyze the effect of the higher union wage on the optimal capital-labor ratio and the firm’s employment of capital and labor. 4 marks) d) The cost of producing 600 small fiberglass sailboats per year, and the cost of producing sails and fittings necessary to make the boats seaworthy in a single plant, are together $780,000. If produced in separate plants, the boats would cost S540,000, and the sails and fittings would cost $180,000. From this information, what can be learned about economies of scope in the production of sailboats, sails, and fittings? 4 marks)
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