You are a manager for Herman Miller, a major manufacturer of office furniture. You recently hired an economist to work with engineering and operations experts to estimate the production function for a particular line of office chairs. The report from these experts indicates that the relevant production function is:
Q = 8(K)1/2(L)1/2
where K represents capital equipment and L is labor. The marginal product of labor and capital are:
MPL = (½)8K1/2L-1/2
MPK = (½)8L1/2K-1/2
Your company has already spent a total of $8,000 on the 9 units of capital equipment it owns.
Due to current economic conditions, the company does not have the flexibility needed to acquire additional equipment. If workers at the firm are paid a competitive wage of $120 per day and chairs can be sold for $400 each.
a) What is your profit- maximizing level of labor usage?
L = Answer
b) What is the profit maximizing level of output?
Q = Answer
c) What are the variable costs when the firm maximizing profits?
VC = $Answer
d) What are the profits when the firm maximizes profits?
Profits = $