Gce Model Questions Vol1 2021 Economics Question 28

Practice objective / multiple choice question 28 from the 2021 Gce Model Questions Vol1 Economics examination.

Gce Model Questions Vol1 2021 Economics Objective / Multiple Choice Hard Difficulty
Question 28 GCE_MODEL_QUESTIONS_VOL1 • 2021 • ECONOMICS • objective

The farm's production function is \( Q = 10 L^{0.5} K^{0.5} \). The wage rate is £2 per unit of labour, the rental rate of capital is £5 per unit, and the output price is £20 per unit. The farm can spend at most £2000 on labour and capital combined.\n\n(a) Find the cost‑minimising ratio of labour to capital and the quantities of \( L \) and \( K \) that the farm will use.\n(b) Compute the maximum output and the resulting profit.\n(c) If the output price rises to £25, what is the new profit and by what percentage does profit increase (rounded to one decimal)?

Answer Options

Correct Answer A. Optimal ratio K:L = 0.4; L = 500, K = 200; Output ≈ 3162.3 units; Profit ≈ £61,245.4; New profit ≈ £77,057.5; Profit rises by ≈ 25.0 %
B. Optimal ratio K:L = 0.5; L = 400, K = 200; Output ≈ 2828.4 units; Profit ≈ £55,000.0; New profit ≈ £70,000.0; Profit rises by ≈ 27.3 %
C. Optimal ratio K:L = 0.4; L = 450, K = 180; Output ≈ 3000.0 units; Profit ≈ £58,000.0; New profit ≈ £73,000.0; Profit rises by ≈ 25.9 %
D. Optimal ratio K:L = 0.3; L = 600, K = 180; Output ≈ 3300.0 units; Profit ≈ £63,500.0; New profit ≈ £78,500.0; Profit rises by ≈ 23.6 %
Correct Answer
A
Correct Option:
Optimal ratio K:L = 0.4; L = 500, K = 200; Output ≈ 3162.3 units; Profit ≈ £61,245.4; New profit ≈ £77,057.5; Profit rises by ≈ 25.0 %

About This Question

This is Gce Model Questions Vol1 2021 Economics Question 28. It is one of the objective questions from the 2021 Gce Model Questions Vol1 Economics examination.

Difficulty level: Hard .

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