Suppose that a firm's production function for Temoc plush toys is given by the following formula:...

Suppose that a firm's production function for Temoc plush toys is given by the following formula: Q=12(EO+EG)^(1/3)

where EO is the number of orange workers and EG is the number of green workers.

The wage that orange workers receive is $7, and the wage for green workers receive is $4. The price of a Temoc Plush Toy is $9.

How many Green and Orange Workers will a profit maximizing firm hire?

Solutions

Expert Solution

MP of orange workers

MP_O = (12/3)*(EO + EG)-2/3

MP_G = (12/3)*(EO+EG)-2/3

Then at eqm, VMP = wage

VMP = Price of output*MP

as MP of two types of workers is equal, so hire the workers which has to paid lower wages , so hire only GREEN WORKERS

SO EO*= 0

FOR EG*, 9*MP_G = 4

36*(EG)-2/3 = 4

9 = EG2/3

EG = 27

Rahul Sunny answered 1 year ago

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