Home » A film studio in Hollywood produces movies according to the function (yes, they can also produce fractions of movies. Think of half a movie as a…

A film studio in Hollywood produces movies according to the function (yes, they can also produce fractions of movies. Think of half a movie as a…

A film studio in Hollywood produces movies according to the function (yes, they can also produce fractions of movies… Think of half a movie as a B-movie or so.) q = F(K, L) = K0.5L 0.5 /100 (reads as K to the power of 0.5 times L to the power of 0.5 divided by 100). In the short run, capital (studios, gear) is fixed at a level of 100. It costs $4,000 to rent a unit of capital and $1,000 to hire a unit of labor (actors, stuntmen, camera crew etc.) The Hollywood studio is doing its planning for the next year and can choose capital and labor.

(a) What is the isocost line for a budget of $4 million? What is the equation of the isoquant? Find the slope of the isoquant and the isocost line.2 What condition has to hold so that you minimize costs? Derive the minimized costs as a function of output. How many movies can you afford to produce at the afore-mentioned budget?

(b) What is the additional cost of an additional movie now? How much does it cost on average to produce a movie? Does it depend on the number of movies you are producing? What is the relationship to the returns to scale of the production function?

(c) Comparing these costs to the situation when you have 100 units of capital, then is your average cost higher or lower [assuming you want to produce 10 movies]? What about the marginal cost? Briefly state why.

(d) Imagine that you come in as a new manager and discover that the current capital-labor ratio is K/L = 1. If you spend 10,000 additional (small fractions of) dollars on hiring more labor, how many additional (small) units of labor can you hire and how much more output can you produce? Answer the same for capital. If you had to stay on the same budget, would you hire or fire workers, in order to maximize output?

(e) Still assume that the current capital-labor ratio is K/L = 1. How many (small) units of capital can you save when you hire four additional (small) units of labor, holding output constant? How much money can you save when you do so?

Show more

Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 10% with the coupon code: best10