University of Alberta - Department of Economics - Winter 2010 ECON 281 - Intermediate Microeconomic Theory I - B3 - Marchand ASSIGNMENT 2 - (100...

) The Alberta Metal Co. produces brass fittings. AMC’s engineers estimate the production function as , where q is annual output in pounds, L is labor in person hours, and K is capital in machine hours. The marginal products of labor and capital are and respectively. AMC’s employees earn $15 an hour and the firm estimates a rental charge of $50 on capital. In addition, AMC forecasts annual costs of $500,000 per year. (40 pts) 8 . 0 6 . 0 500 K L q ⋅ ⋅ = . 0 4 . 0 300 K L MPL ⋅ ⋅ = − 8 2 . 0 6 . 0 400 − ⋅ ⋅ = K L MPK