Project #15868 - Economics

1. In

the Deep Creek Mining Company example described in this chapter (Table 7.1)

,

s

 

uppose again that labor is the variable input and capital is the fixed input. Specificall

y,

ass

 

ume that the firm owns a piece of equipment having a 500-bhp rati

ng.

a.

 

Complete the following table

:

LA

 

BOR INPUT

L

(

NO.

OF

W

 

ORKERS

)

TO

TAL

PRODU

CT

TP

L

(=

Q)

MA

 

RGINA

L

P

 

RODUCT

M

 

P

L

AV

 

ERAG

E

PRO

DU

CT

A

 

P

L

1

2

3

4

5

6

7

8

9

10

1

.

)

b

. Plot the (i) total product, (ii) marginal product, and (iii) average produ

ct

function

s

.

c

. Determine the boundaries of the three stages of producti

on.

An Illustrative Production Function: Deep Creek

Mining Company

The D

eep Creek Mining Company uses capital (mining equipment) a

nd labor

(

 

workers) to mine uranium are. Various sizes of ore-mining equipment, as mea

sured

b

y its brake horsepower (bhp) rating, are available to the company.

The

amount of are mined during a gi

ven period (Q) is a function only of the numbe

r

of worker

s assigned to the crew (L) operating a given type of equipment (K). T

he

data in Table

7.1 show the amount of ore produced (measured in tons) when v

arious

sizes of crews are used to operate the equipment.

A two-i

nput, one-output production function at Deep Creek Mining ca

n also be

represented

graphically as a three-dimensional production surface

, where the

height of the square column associated with each

input combinati

on in Figure 7.l

indica

tes the amount of iron ore output produce

d.

TABLE

 

 

7.1 TOTAL OUTPUT TABLE-DEEP CREEK MINING COMPANY

C

APITAL INPUT K (BHP, BRAKE HORSEPOWER

)

250 500

750 1,000 1,250 1,500 1,750 2,

000

L

ABOR 3 6 10 16 16 16 1

3

I

NPUT L 2 2 6 16 24 29 29 4

4 44

(

 

NUMBE

R OF

WORK

ERS) 3 4 16 29 4

4 55 55 55 50

4

6 29 44 55 58 60

60 55

5

16 43 55 60 61 62 62 6

0

6

29 55

60 62 63 63 63 62

7 4

 

4 58 \, 62 63 64 - 64 64

64

8

50 60 62 63 64 65 65 6

5

9

55 59 61 63 64 65

66 66

10 52 56 5

9 62 64 65

66 67

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