The Manager of a National Retailing Outlet Recently Hired an Economist

question 142

Essay

The manager of a national retailing outlet recently hired an economist to estimate the firm's production function.Based on the economist's report,the manager now knows that the firm's production function is given by $Q = K ^ { 1 / 2 } L ^ { 1 / 2 }$ and that capital is fixed at 1 unit.
a.Calculate the average product of labor when 9 units of labor are utilized.
b.Calculate the marginal product of labor when 9 units of labor are utilized.
c.Suppose the firm can hire labor at a wage of $10 per hour and output can be sold at a price of $100 per unit.Determine the profit-maximizing levels of labor and output.
d.What is the maximum price of capital at which the firm will still make nonnegative profits?

---

Definitions:

Stockholders' Equity

The ownership interest of shareholders in the assets of a corporation after all debts have been paid.

Retained Earnings

Retained earnings are the portion of a company's profits that are kept or reinvested in the business instead of being distributed to shareholders as dividends.

Weighted-average Shares

A calculation used in accounting and finance to determine the average number of shares outstanding in a company, adjusted for stock splits and other changes.

Price-earnings Ratio

A financial metric comparing a company's market price per share to its earnings per share, indicating the value given by the market for each dollar of earnings.