Gce Model Questions Vol1 2019 Economics Question 24

Practice objective / multiple choice question 24 from the 2019 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2019 Economics Objective / Multiple Choice Hard Difficulty
Question 24 GCE_MODEL_QUESTIONS_VOL1 • 2019 • ECONOMICS • objective

A farm uses labour \(L\) (workers) and capital \(K\) (machines) to produce output according to the Cobb‑Douglas function \(Q = 20L^{0.5}K^{0.5}\). Capital is fixed at \(K=16\) units. The wage rate is \(£50\) per worker per day, the rental rate of capital is \(£200\) per unit per day, and the output price is \(£12\) per unit.\n\n(a) Determine the number of workers that maximises profit and compute the maximum profit.\n(b) If a new technology doubles the effective productivity of capital (so the effective capital becomes \(2K\)), recompute the optimal labour input and the new maximum profit.

Answer Options

A. Initial optimum: about 80 workers, profit £1,200. After technology: about 160 workers, profit £2,400.
B. Initial optimum: about 85 workers, profit £1,300. After technology: about 170 workers, profit £2,600.
Correct Answer C. Initial optimum: about 92 workers, profit £1,408. After technology: about 184 workers, profit £2,818.
D. Initial optimum: about 100 workers, profit £1,600. After technology: about 200 workers, profit £3,200.
Correct Answer
C
Correct Option:
Initial optimum: about 92 workers, profit £1,408. After technology: about 184 workers, profit £2,818.

About This Question

This is Gce Model Questions Vol1 2019 Economics Question 24. It is one of the objective questions from the 2019 Gce Model Questions Vol1 Economics examination.

Difficulty level: Hard .

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