Q333
The firm uses the following function to calculate the production out (PO) : PO = 5.3C2 L15, where C = capital invested and L = labour employed. If the capital invested (C) increases by 20 percent, the change in PO will be :
A.
20% decrease
B.
32% increase
C.
44% increase
AnswerD.
56% increase
Answer: Option C
Solution
Answer: Option C
Solution:
POinitial = 5.3C2 L15 POnew = 5.3 (1.2C)2 L15
= 1.44 (5.3C2 L15)
= 1.44POinitial
Increase in PO = 0.44POinitial
∴ Increase % = (0.44 × 100)% = 44%