1=Assume the short run production function of a firm is given by Q=KL-0.2K^2-0.1L^2. If L is variable input and K is fixed at 10

Question

1.1=How many labour forces should the company hire to produce its maximum possible output size? And show if average productivity of labour force is increasing or decreasing at this point.
1.2=How many labour forces should the company hire to make the average productivity of the variable input maximum? And show if the marginal productivity of the labour force is increasing or decreasing at this point.

Answer 1

1.1=The company should hire 10 labour forces to produce its maximum possible output size. At this point, the average productivity of labour force is decreasing, since the marginal product of labour is negative.

1.2=The company should hire 5 labour forces to make the average productivity of the variable input maximum. At this point, the marginal productivity of the labour force is increasing, since the marginal product of labour is positive.