Semiconductor Price
Economics: Cost Minimizing/Max Out put?
I have been working on the same problem for hours. Needless to say I need help. My teacher gives horrible lectures so my notes are no help and I can’t find similar examples in any textbooks. Some one please HELP!!
Question:
Suppose that a semiconductors plant’s production function is Q=5LK. Suppose that the price of labor is $1 a unit and the price of capital is $2 a unit.
A) The firm’s manager hires you to figure out what combination of inputs should be used to produce 20 units of output. What advice would you give them?
B) Same as A) but the price of labor has risen to $2 a unit.
Q= output Quantity L= Labor and K = Capital
and Yes I agree I feel like the question is missing something? now you see how frustrated I am with this crazy class/professor and his homemade homework assignments. I dont know if that might even be my answer… Not enough Info… LOL you
I hope I’m remembering this correctly, it’s been several years since I have worked this kind of problem.
From the production function, to get Q=20, then L times K must equal 4. The possibilities are:
L=1 and K=4; L=2 and K=2; L=4 and K=1
If the price of L=$1 and the price of K=$2, then the cost of each possibility:
$1+ $8 = $9 (for L=1 and K=4); $2 + $4 = $6 (for L=2 and K=2); $4 + $2 = $6 (for L=4 and K=1)
The combination with the lowest cost for 20 units would be either 2 units of labor and 2 units of capital, or 4 units of labor and 1 unit of capital. Either answer would be correct.
If the price of L=$ and the price of K=$2, then the cost of each possibility:
$2 + $8 = $10 (for L=1 and K=4); $4 + $4 = $8 (for L=2 and K=2); $8 + $2 = $10 (for l=4 and K=1)
The combination with the lowest cost for 20 units would be 2 units of labor and 2 units of capital.
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