You are the owner of a small coffee shop in the Lake District. In the kitchen your capital stock consists of six dishwashing machines and you also employ eight students who also wash dishes. You employ K units of capital stock that has a price of £r per unit, L units of labour that is paid a wage of £w per hour and your total factor costs are £C. (a) Use an appropriate diagram to show how you would maximise your long-run output, subject to your cost constraint. (b) When you re-open after the pandemic, the students demand a pay rise of 50p per hour as there is a labour shortage in the hospitality industry. Show on your diagram from part (a) how this would effect your choice of K and L.
You are the owner of a small coffee shop in the Lake District. In the kitchen your capital stock consists of six dishwashing machines and you also employ eight students who also wash dishes. You employ K units of capital stock that has a price of £r per unit, L units of labour that is paid a wage of £w per hour and your total factor costs are £C. (a) Use an appropriate diagram to show how you would maximise your long-run output, subject to your cost constraint. (b) When you re-open after the pandemic, the students demand a pay rise of 50p per hour as there is a labour shortage in the hospitality industry. Show on your diagram from part (a) how this would effect your choice of K and L.
Chapter9: Production Functions
Section: Chapter Questions
Problem 9.1P
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You are the owner of a small coffee shop in the Lake District. In the kitchen your capital stock consists of six dishwashing machines and you also employ eight students who also wash dishes. You employ K units of capital stock that has a price of £r per unit, L units of labour that is paid a wage of £w per hour and your total factor costs are £C.
(a) Use an appropriate diagram to show how you would maximise your long-run output, subject to your cost constraint.
(b) When you re-open after the pandemic, the students demand a pay rise of 50p per hour as there is a labour shortage in the hospitality industry. Show on your diagram from part (a) how this would effect your choice of K and L.
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