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{"ops":[{"insert":"Suppose that your semiconductor company"},{"attributes":{"script":"super"},"insert":"\u2019"},{"insert":"s production function is given by Q = 20KL, where K is capital and L is labor. The price of labor (P"},{"attributes":{"script":"sub"},"insert":"L"},{"insert":") is $10 per unit and the price of capital (P"},{"attributes":{"script":"sub"},"insert":"K"},{"insert":") is $20 per unit.\u00a0The marketing department of your company advises you that 1,000 (one thousand) units will be demanded in about five years.\n\u00a0\n(a)\u00a0\u00a0\u00a0Calculate the optimal size of plant (K) as well as the level of employment (L) for this volume of sale.\u00a0Also estimate the average cost of production. (note that MP"},{"attributes":{"script":"sub"},"insert":"L "},{"insert":"= 20K, and MP"},{"attributes":{"script":"sub"},"insert":"K "},{"insert":"= 20L).\n\n(b)\u00a0\u00a0\u00a0Now suppose that the marketing department receives new information on the basis of which it revises its estimate of the demand to 2,000 (two thousand) units.\u00a0Recalculate the optimal combination of K and L necessary for this output level, and re-estimate the average cost of production in the light of this new information.\n\n(c)\u00a0\u00a0How would you explain the change in the cost per unit as calculated in parts (a) and (b)?\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n(d)\u00a0If due to some technicality, the firm is unable to expand its plant over the next five years; will the engineering department still be able to meet this new volume of demand in any alternative way?\u00a0How?\u00a0How much extra cost will be involved?\n\n"}]}

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