Question

Imagine that Florida was an independent company and that a series of hurricanes destroyed 10 percent of its capital stock. Use production function diagrams to show what this disaster would imply for the level of output; labor productivity; and capital productivity. Assume that the labor force is fixed and fully employed.

Answer 1

Production function studies the funtional relationship between physical inputs and physical output of a commodity . It is purely a technical relationship between material output in one hand and the material input on the other hand . .iT is expreshed in the terms of following equation : Qx=F(L,K), Qx is the production of output of commodity . L is labour . K Iis the capital

In the above case labour aspect is fully fixed and employed there by no change can be made in the labour , the only flexiable aspect isthe capital . There by production curve will 1st be sloping upward and due to damage in the companys capital the slop will not slop down by 10%