ECON 153 – Suppose a firm’s production function

Subject: Economics    / General Economics
Question

7. Suppose a firm’s production function is given by

Q =10*(Ew+Eb)^0.5 ,

where Ew and Eb are the number of white and black workers employed by the firm, respectively, and Q refers to the quantity of output produced. It can be shown that the marginal product of labor is given by: MPE = 5/[(Ew+Eb)^0.5]

Suppose the market wage for black workers is $10, the market wage for white workers is $20, and the price of each unit of output is $100.

c.Finally, assume that the firm has a discrimination coefficient of 1.25. How many workers of each race would the firm hire and how much profit would it earn? (3 points)