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.