Compute the average product of labor if the firm
Question
You are the manager of a retailing outlet. In order to estimate the firm’s production function you hire an economist. According to the economist estimation, the production function is a typical Cobb-Douglass production function. The production function is Q= K^(1/2) L^(1/2) . We also have that capital is fixed at 9 units.
a. Compute the average product of labor if the firm uses 18 units of labor.
b. Compute the marginal product of labor if the firm uses 18 units of labor.
c. Assume that the firm pays labor a wage of $15 per hour and the firm’s output can be sold at $150 per unit. What are the profit-maximizing levels of labor and output for the firm?
d. Calculate maximum price of capital at which the firm will still make nonnegative profits?
