1. At Addis Food Factory, the daily output is 𝑄 = 3,000𝐾1 2 ⁄ 𝐿1 2 ⁄ units, where K denotes the
company’s capital investment in units of Birr 1,000 and L denotes the size of the labor force
measured in worker-hours. Suppose that the current capital investment is Birr 400,000 and that
1,331 worker hours of labor are used each day.
a) Determine the marginal product of capital function (4 points)
b) Estimate the effect that an additional capital investment of Birr 1,000 units will have on the daily
output if the size of the labor force remains unchanged. (4 points)
2. Given the average cost function of Adama Edible Oil Factory 𝐴𝐶 = 𝑞2 − 4𝑞 + 214.
a) Find the marginal cost function (4 points)
b) What is the value of the marginal cost at 100 units of output? (4 points)
3. A candidate wishes to use a combination of radio and television advertisements in his campaign.
Research has shown that each 1-minute spot on television reaches 0.09 million people and each
1-minute spot on radio reach at least 2.16 million people, and he must buy a total of at least 80
minutes of advertisements. How many minutes of each medium should be used to minimize
costs if television costs $500 per minutes and radio costs $1,000 per minute? (4 points)