Problem:
Production function: Q=25LK
Q = quantity produced in 1 month
L = number of workers with monthly wage of $3,000 each
K = number of machines with monthly rental of $6,000 each
There are 25 workers and 40 machines (assume perfect divisibility between labor & machines)
Q1. What is current average product of labor?
What is current marginal product of machines?
(Assume one unit increase in machines)
Q2. Does production function display increasing, decreasing or constant returns of scale? why?
Q3. What is total cost of production for one month?
What is the average cost to produce one unit?
Assuming number of machines does not change, what is marginal cost of producing one additional unit?