Page 122 - DECO405_MANAGERIAL_ECONOMICS

Unit 7: Laws of Production

6. Suppose the production function for widgets has the form Notes
0.3
Q = q(K,L)= 50K L 0.7
Where q is the quantity of tools per day, K is the quantity of capital input, and L is the
quantity of labor input per day.
(a) Does this production function have increasing, constant, or decreasing returns scale?
(b) What is the marginal product of capital when the firm is suing 5 units of capital and
1 unit of labour?
(c) What is the marginal product labor when the firm is using 5 units of labor and 1 unit
of capital?
(d) What is the total output when the firm is using 5 units of capital and 5 units of labor?
Draw an isoquant representing this level of output.
(e) What additional information would you need to determine which of the combinations
on your isoquant is "best"? That is what would you want to know to choose the best
combination of labor and capital to use in your production process?

7. “Technical and/or managerial indivisibilities cause increasing return to scale.” Give your
opinion.
8. Discuss returns to scale with the help of examples.
9. Bring out the difference between increasing, decreasing and constant returns to scale with
the help of suitable figures only.
10. Comment on the role of specialization in increasing returns to scale.

Answers: Self Assessment

1. fall off 2. less 3. technical
4. increasing 5. increased 6. Maximum
7. Negative 8. Second 9. Third
10. Increasing and Decreasing

7.7 Further Readings

Books Dr. Atmanand, Managerial Economics, Excel Books, Delhi.

H.Craig Patersen, Managerial Economics, Prentice Hall
Malcolm P. McNair and Richard S. Meriam, Problems in Business Economics, McGraw-
Hill Book Co., Inc.
Paul G. Keat, Managerial Economics, Pearson Education

Online links faculty.lebow.drexel.edu/McCainR/top/Prin/txt/MPCh/firm4a.html
http://www.docshare.com/doc/211217/PRODUCER-EQUILIBRIUM
ingrimayne.com/econ/TheFirm/ProductionFunct.html

LOVELY PROFESSIONAL UNIVERSITY 117