Davy Metal Company produces brass fittings. Davy\'s engineers estimate the produ

Question

Davy Metal Company produces brass fittings. Davy's engineers estimate the production function represented below as relevant for their long-run capitallabor decisions.

Q = 500L0.6K0.8,

                        where Q = annual output measured in pounds,

                        L = labor measured in person hours,

                        K = capital measured in machine hours.

                        Davy's employees are relatively highly skilled and earn $15 per hour. The firm estimates a rental charge of $50 per hour on capital. Davy forecasts annual costs of $500,000 per year, measured in real dollars.

a. Write the equation for the isocost line.

b. Determine the MRTS for the firm.

c. Determine the firm's optimal capital-labor ratio (expansion path).

d. How much capital and labor should the firm employ given a $500,000 budget?

e. Determine the firm's output.

f. Is this an increasing, decreasing, or constant returns to scale production function? Explain

Explanation / Answer

3.      If cuts are likely to continue, administrators should be particularly vigilant to monitor the quality and effectiveness of programs and to closely watch how well programs use financial resources

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