A bottling company uses two inputs to produce bottles of the soft drink Sludge: bottling machines (K) and workers (L). The isoquants have the usual smooth shape. The machines cost $1,000 per day to run (r), and the workers earn $200 per day (w). At the current level of production, the marginal product of machines (MPK) is an additional 417 bottles per day, and the marginal product of labor (MPL) is 28 more bottles per day. Is this firm producing at minimum cost? If it is minimizing cost, explain why. If it is not minimizing cost, explain how the firm should change the ratio of inputs it uses to lower its cost. The bottling company OA. is not minimizing the cost of production because MPK/r> MPL /w and should use more labor and fewer machines. B. is not minimizing the cost of production because MPK/MPL = r/w and should use more labor and fewer machines. C. is minimizing the cost of production because MPK/r=MPL/w. D. is not minimizing the cost of production because MPK/rMPL/w and should use less labor and more machines.

A bottling company uses two inputs to produce bottles of the soft drink Sludge: bottling machines (K) and workers (L). The isoquants have the usual smooth shape. The machines cost $1,000 per day to run (r), and the workers earn $200 per day (w). At the current level of production, the marginal product of machines (MPK) is an additional 417 bottles per day, and the marginal product of labor (MPL) is 28 more bottles per day. Is this firm producing at minimum cost? If it is minimizing cost, explain why. If it is not minimizing cost, explain how the firm should change the ratio of inputs it uses to lower its cost. The bottling company OA. is not minimizing the cost of production because MPK/r> MPL /w and should use more labor and fewer machines. B. is not minimizing the cost of production because MPK/MPL = r/w and should use more labor and fewer machines. C. is minimizing the cost of production because MPK/r=MPL/w. D. is not minimizing the cost of production because MPK/rMPL/w and should use less labor and more machines.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A bottling company uses two inputs to produce bottles of the soft drink Sludge: bottling
machines (K) and workers (L). The isoquants have the usual smooth shape. The
machines cost $1,000 per day to run (r), and the workers earn $200 per day (w). At the
current level of production, the marginal product of machines (MPK) is an additional 417
bottles per day, and the marginal product of labor (MPL) is 28 more bottles per day. Is
this firm producing at minimum cost? If it is minimizing cost, explain why. If it is not
minimizing cost, explain how the firm should change the ratio of inputs it uses to lower its
cost.
The bottling company
A. is not minimizing the cost of production because MPK/r> MPL /w and should use
more labor and fewer machines.
B. is not minimizing the cost of production because MPK/MPL = r/w and should use
more labor and fewer machines.
C. is minimizing the cost of production because MPK/r=MPL/w.
D. is not minimizing the cost of production because MPK/r<MPL/w and should use
more labor and fewer machines.
E. is not minimizing the cost of production because MPK/r>MPL /w and should use
less labor and more machines.

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