Scribd
Upload
523 views

Assignment 3 - Production Solution Set: Problem 1 (0.5x8 + 2 5 Marks)

The document provides solutions to 4 problems related to production functions and factor inputs. Problem 1 asks about diminishing returns in a production table. The solution fills in missing values and identifies that diminishing returns set in at the 5th unit of the variable input. Problem 2 involves determining the marginal product, average product, and optimal input levels for a given short-run production function. Problem 3 asks if a firm is using an efficient factor combination based on given marginal products and factor prices. Problem 4 asks about deriving marginal product and average product functions for a given production function, and identifying where diminishing returns and maximum average product occur.

Uploaded by

Rajesh Surathanu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
523 views

Assignment 3 - Production Solution Set: Problem 1 (0.5x8 + 2 5 Marks)

The document provides solutions to 4 problems related to production functions and factor inputs. Problem 1 asks about diminishing returns in a production table. The solution fills in missing values and identifies that diminishing returns set in at the 5th unit of the variable input. Problem 2 involves determining the marginal product, average product, and optimal input levels for a given short-run production function. Problem 3 asks if a firm is using an efficient factor combination based on given marginal products and factor prices. Problem 4 asks about deriving marginal product and average product functions for a given production function, and identifying where diminishing returns and maximum average product occur.

Uploaded by

Rajesh Surathanu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Assignment 3 – Production

Solution Set
Problem 1 (0.5x8 + 2 = 5 Marks)

Fill in the blanks in the following table:

Marginal Product of the Average Product of the


Number of variable input (L) Total Output (TP) variable input (MP) variable input (AP)
3 18 30
4 20
5 130
6 5
7 19.5

Does the production function stated in the table given the above exhibit diminishing returns? If
so, at what number of units of the variable input do diminishing returns?

Solution

Marginal Product of the Average Product of the


Number of variable input (L) Total Output (TP) variable input (MP) variable input (AP)
3 90 18 30
4 110 20 27.5
5 130 20 26
6 135 5 22.5
7 136.5 1.5 19.5
Yes, the above table exhibits diminishing returns.
5th unit of the variable input is where the diminishing returns sets in

Problem 2 (1 x 4 = 4 Marks)

Consider the following short-run production function (where L is the variable input and Q is the
output)
Q = 6L2-0.4L3
a. Determine the marginal product function (MPL).
b. Determine the average product function (APL)
c. Find the value of L that maximizes Q
d. Find the value of L at which its average product takes on its maximum value.
Solution
a. MPL = 12L – 1.2 L2
b. APL = 6L – 0.4L2
c. Value of L that maximizes Q
MP = 0 => 12L-1.2L2=0 => 1.2(10-L) => L = 10
d. At AP Max
MPL = APL => 12L - 1.2L2 = 6L – 0.4L2 =>L=7.5

Problem 3 (3 Marks)
A firm is producing output using labor and capital in such quantities that marginal product of
labor is 15, and marginal product of capital is 8. The wage rate of labor is Rs.3 and price of
capital is Rs. 2. Is the firm using efficient factor combination for production? If not, what should
it do to achieve economic efficiency?

Solution
MP❑ 8 MP❑L 15 MP❑ MP❑L
k
= =4 ; = =5 ; k
<
r 2 w 3 r w

Problem 4 (1 x 3 = 3 Marks)

A firm produces output according to the production function Q = 10KL2 – L3, where K denotes
the capital stock of the firm, and L denotes the number of workers it hires. Suppose that the firm
has a capital stock K of 10.
a. Derive the firm’s marginal product and average product of labor.
b. At what level of labor does diminishing return set in?
c. At what level of labor is the average product of labor at its highest?

Solution
a. MP = 2 x10x10xL - 3L2 = 200L – 3L2

AP = 10x10xL – L2 = 100L – L2

ⅆMP 200
b. MP Max =200−6 L=¿ L= =33 ⋅33
ⅆL 6
ⅆAP
c. AP Max =100−2 L=¿ L=50
ⅆL

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy