Macroeconomics Answers

Lungameni Enterprises manufactures Product A selling it to the local customers at a market up of 25%. They currently absorbs overheads cost on the basis of direct labour hours. Prouction volume for product A was estimated at 1000 units. Only 80% of production volume was achieved. Standard practice product A requires 0.5 hours at an hourly rate of N$8.50. The 80% production volume produced at 45 minutes per unit and hourly rate of N$8.00. Raw materials bought from local suppliers at N$3.50 per kilogram. Each unit require 1.5 kilograms. Two kilograms was used. Monthly manufacturing overhead costs amounted to N$1200. The production manager view that manufacturing overheads cost be absorbed on the basis of direct labour cost.

Required:

For the month of May 2021, on the basis of gross / (loss) do you agree with Lungameni Enterprises production managers recommendation ? Show all the workings.

Suppose that the closed economy’s production function is given by  

Y = F(K,N) 

Write this production function as a relation between output per worker and capital per worker (State appropriate assumptions).

Consider the following Cobb Douglas Production Function: 

Y =√K √N 

Write this production function as a relation between output per worker and capital per worker.

Consider the following Cobb Douglas Production Function: 

Y =√K √N 

Is this production function characterised by constant returns to scale? Demonstrate.