Q.

1 The Oceanic Pacific has conducted a series of experiments to determine the

amount of Tuna-fish that could be caught with different crew sizes. Suppose the
market price of Tuna is 3.5 Rs/pound, how many fishermen should the company use
if the daily wage rate is Rs. 100/Q.2 Suppose you are asked to collect data for output and input of production
process
Q=50L+6L2-0.5L3
Solution: Do double differentiation to find inflection point, which shows the point
from where the marginal output starts declining.
Power Production Function: Q = a(L^b)
Cobb - Douglas Production Function:
- Originally constructed for all the manufacturing output in the US for years 1899
to 1922
- Two inputs used were manual workers(L) and fixed capital(k)
- Formula for production function as suggested by Cobb was:
Q=a*(L^b)*[K^(1-b)]
[The coefficients of log-log regression signifies price elasticity of
demand]
Eg: Q=20-2*P, this means -2=delA/delP
Then ln(Q)=1.7-15*ln(P), this means -15=del ln(Q)/del ln(P)=proportionate
change in Q/proportionate change in P=elasticity
Hence, del ln(Q)/del ln(L)=Labour elasticity of output
Similarly, del ln(Q)/del ln(K)=Capital elasticity of output
Cobb-Douglas assumed US industries were having constant returns to
scale
Through this analysis we can come to know if an industry is labor intensive or
capital intensive based on the proportion of coefficients
The coefficients are generally obtained from shop-floors and are not shared by
managers as that shows productivity of the company.