4, A CEO must divide a total amount of labor L = 20 to produce two outputs a1 an

Question

4, A CEO must divide a total amount of labor L = 20 to produce two outputs a1 and z2, which have the following production functions: 10L-0.5Li and x2 812-075L where Li is the portion of labor dedicated to produce good 1 and L2 is the labor dedicated to produce good 2. Suppose that the CEO maximizes total profit where the price of good 1 is S4 and the price of good 2 is S5. Set up the Kuhn-Tucker maximization problem and determine the Kuhn- Tucker conditions. Solve for equilibrium L, L, and . Which constraint is non-binding? Does this mean that the CE0 should layoff workers?

Explanation / Answer

Marginal analysis involves a cost-versus-benefits comparison of various business activities. In marginal analysis, the cost of an activity is measured against incremental changes in volume to determine how the overall change in cost will affect the bottom line of a business. Marginal analysis can show the cost of additional production by a business all the way up to the break-even point. This is generally the maximum cost that a business can sustain without losing money.

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