Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 30

Answer the following questions, continuing to assume the production function for DurableTires Corp. is
where Q is the quantity of tires produced, L is the number of workers employed, and K is the number of machines rented. Moreover, assume the wage per unit of labor (WL) is $50 and the rental price per machine is $200 (WK).
a. What is the total cost of producing the quantity of tires you found in your answer to question 5-23(a) And the average cost Assuming the number of machines rented does not change, what is the marginal cost of producing one additional tire
b. Given the production function above, the marginal product of labor and the marginal product
of capital are
respectively. Given the wage and rental rate above, is DurableTires Corp. adopting an optimal input mix to produce the quantity of tires found in question 5-23(a) If yes, why If not, why not, and how could DurableTires Corp. save money producing that same quantity of tires Explain.
c. What happens to the optimal input mix you found in question 5-23, if the government introduces a tax that raises the cost of labor to $150 per worker Explain.