1. (10 points) (a) You are an efficiency expert hired by a manufacturing firm that uses K (capital) and L(labor) as inputs. The firm produces and sells a given output. If w (price of labor) = $40, r (price of capital) = $100, MP₁ = 20, and MPx = 40 is the firm minimizing cost? Please explain and show any calculations. (b) The production function for a competitive firm is Q=K05L05. The firm sells its output at a price of $10 (per unit) and can hire labor at a wage of $5 (per worker). K0.5 Marginal Product of labor = 0.50.5 Capital is fixed at 25 units. Since capital is fixed, there is no marginal product of capital. What is the profit-maximizing quantity of labor? Please show your calculations.
1. (10 points) (a) You are an efficiency expert hired by a manufacturing firm that uses K (capital) and L(labor) as inputs. The firm produces and sells a given output. If w (price of labor) = $40, r (price of capital) = $100, MP₁ = 20, and MPx = 40 is the firm minimizing cost? Please explain and show any calculations. (b) The production function for a competitive firm is Q=K05L05. The firm sells its output at a price of $10 (per unit) and can hire labor at a wage of $5 (per worker). K0.5 Marginal Product of labor = 0.50.5 Capital is fixed at 25 units. Since capital is fixed, there is no marginal product of capital. What is the profit-maximizing quantity of labor? Please show your calculations.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. (10 points)
(a) You are an efficiency expert hired by a manufacturing firm that uses K (capital) and L(labor)
as inputs. The firm produces and sells a given output. If w (price of labor) = $40, r (price of
capital) = $100, MP₁ = 20, and MPx = 40 is the firm minimizing cost? Please explain and show
any calculations.
(b) The production function for a competitive firm is Q=K05L05. The firm sells its output at a
price of $10 (per unit) and can hire labor at a wage of $5 (per worker).
K0.5
Marginal Product of labor = 0.50.5
Capital is fixed at 25 units. Since capital is fixed, there is no marginal product of capital.
What is the profit-maximizing quantity of labor? Please show your calculations.
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