Answer to Question #120798 in Microeconomics for Rachael

Question

A firm produces cellular telephone service using equipment and labor. When it uses E machine-hours of equipment and hires L person-ours of labor, it can provide up to Q unites of telephone service. The relationship between Q, E, and L is as follows: Q = EL . The firm must always pay PE for each machine-hour of equipment it uses and PL for each person-hour of Labor it hires. Suppose the production manager is told to produce Q=200 units of telephone service and that she wants to choose E and L to minimize costs while achieving that production target.
a) What is the objective function for this problem?

Answer 1

The objective function is the relationship the production manager seeks to maximize 

or minimize. In this example, the production manager wants to minimize costs. The 

production manager’s costs are given by the following expression:

P_EE + P_L L .

Thus, the objective function is P_E E + P_L L .