Profit maximization in short-run
A jeans manufacturer hires workers to sew jeans in its factory and derives the following daily yields of total product, or jeans output (in pairs):
Factory Workers Total Product (pairs) Marginal Product (pairs) Average Product (pairs)
(a) Does this production function exhibit increasing, decreasing, constant returns, or some combinations of the three?
(b) Assuming the price of jeans is $30 per pair and each worker is paid $90 per day, if the jeans manufacturer acts to maximize profit, how many total pairs of jeans will be produced? _________ How many workers will be employed? __________.
What will the jeans manufacturerís total profit be at this output level? _________.
Why? (State the key conditions used in your analysis.
(c) Now assume that each workerís wage drops to $30 per day. What is the new profit maximizing output level? ________. How many workers are hired at this level?