If workers at the firm are paid a competitive wage of $120 and chairs can be sold for $400 each,...


John is the manager of Herman Miller(a major manufacturer of office furniture). He recently hired an economist to work with engineering and operations experts to estimate the production function for a particular line of office chairs.

The report from these experts indicates that the relevant production function is:

{eq}Q = 2(K)^{1/2}(L)^{1/2} {/eq}

where {eq}K {/eq} represents capital equipment and {eq}L {/eq} is labor. His company has already spent a total of $8,000 on the 9 units of capital equipment it owns. Due to current economic conditions, the company does not have the flexibility needed to acquire additional equipment.

If workers at the firm are paid a competitive wage of $120 and chairs can be sold for $400 each, what is the profit-maximizing level of output and labor usage?


Production is the result of the coordination of four factors of production viz., land, labor, capital, and organization to deliver expected results.

Answer and Explanation: 1

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The production function is given as :

$$Q = 2(K)^{1/2}(L)^{1/2} $$

It is also given that K = 9, then production function changes to

$$Q =...

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Learn more about this topic:

Production Function in Economics: Definition, Formula & Example


Chapter 11 / Lesson 27

Learn about the production function. Read the production function definition in economics, learn the production function formula. Plus, see graphs and examples.

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