Inflexible Production

Suppose an organization has a production process in which each employee must have exactly one unit of capital to use. The employees cannot share capital: two employees would need two units of capital. Each employee can produce up to 10 units of output per day (when equipped with a unit of capital). The employees are skilled and earn $200 per day. Each unit of capital costs $70 per day. The organization faces the following demand curve for its product:

P = 50 - Q

1. What should the organization do if it wants to maximize profits? How much labor and capital should it buy per day? How much output should it produce? How much should it charge?

    

2. What should the organization do if it wants to maximize output without running a deficit?

Solution