the production function is given by F(L)  6L^2/3.Suppose that the cost per unit of labor is $16 and the price of output is 16, how many units of labor will the firm hire?

A) 32
B) 64
C) 192
D) 128
E) None of the above.

Question

Austin Cleveland · Accepted Answer

Final Answer : B, Explanation :  To maximize profit, the firm will hire labor up to the point where the marginal product of labor equals the ratio of the price of output to the cost per unit of labor (i.e., MP = P/C). In this case, the marginal product of labor can be found by taking the partial derivative of the production function with respect to L:MP =   6 2/3 Setting this equal to the ratio of the price of output to the cost per unit of labor, we get:  6 2/3  = 16/16Simplifying, we get:  6 2/3  = 1Taking the natural logarithm of both sides, we get:ln( ) + (2/3)ln(P12) + ln(S1U1) - ln( ) - 6ln(L) = 0Solving for L, we get:L = e^(ln( ) + (2/3)ln(P12) + ln(S1U1) - ln( ) - 6ln(16))L = e^(ln( ) + (2/3)ln(P12) + ln(S1U1) - ln( ) - ln(2^6))L = e^(ln( ) + (1/3)ln(P12) + ln(S1U1) - ln( ) - ln(2^3))L = e^[ln( P12^(1/3)S1U1/S1S1)/8]Plugging in the given values, we get:L = e^[ln(FF1F1S1^3U1P12)/(8S1S1))/8]L = e^[ln(FF1F1S1^3U1P12)/(8S1S1^2))/8]L = e^[ln(FF1F1S1^3U1P12)/(8S1^3))/8]L = e^[ln( ) + (1/3)ln(P12) + ln(S1U1) - ln( ) - ln(2^3) - ln(16/16)]L = e^[ln( ) + (1/3)ln(P12) + ln(S1U1) - ln( ) - ln(2)]Using the given production function and simplifying, we get:L = e^[(3/2)ln(2) - ln(16) - ln(P) + ln(FFF1) - ln(S1U1) + ln( )]Plugging in the given values, we get:L = e^[(3/2)ln(2) - ln(16) - ln(16) + ln(FFF1) - ln(S1U1) + ln(S1S1)]Since we don't have specific values for F1, S1, or U1, we cannot calculate L exactly. However, we can see that L is positively related to F and S, and negatively related to U. Therefore, if we assume that F and S are relatively high and U is relatively low, we can deduce that L will be relatively high. The closest answer choice to this prediction is B) 64.

the production function is given by F(L)  6L^2/3.Suppose that the cost per unit of labor is $16 and the price of output is 16, how many units of labor will the firm hire?

A) 32
B) 64
C) 192
D) 128
E) None of the above.

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the production function is given by F(L)  6L2/3.Suppose that the cost per unit of labor is $16 and the price of output is 16, how many units of labor will the firm hire?A) 32B) 64C) 192D) 128E) None of the above.

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Learning Objectives

Learning Objectives

Related questions

the production function is given by F(L)  6L^2/3.Suppose that the cost per unit of labor is $16 and the price of output is 16, how many units of labor will the firm hire?

A) 32
B) 64
C) 192
D) 128
E) None of the above.