A firm produces output according to a production function: Q=RK,L) = min [4K,4L). a. How much output is produced when K= 2 and L= 1? unit(s) b. If the wage rate is $60 per hour and the rental rate on capital is $40 per hour, what is the cost-minimizing input mix for producing 8 units of output? Capital: Labor: c. How does your answer to part b change if the wage rate decreases to $40 per hour but the rental rate on capital remains at $40 per hour? O Capital decreases and labor increases. O It does not change. O Capital increases and labor decreases. O Capital and labor increase.

A firm produces output according to a production function: Q=RK,L) = min [4K,4L). a. How much output is produced when K= 2 and L= 1? unit(s) b. If the wage rate is $60 per hour and the rental rate on capital is $40 per hour, what is the cost-minimizing input mix for producing 8 units of output? Capital: Labor: c. How does your answer to part b change if the wage rate decreases to $40 per hour but the rental rate on capital remains at $40 per hour? O Capital decreases and labor increases. O It does not change. O Capital increases and labor decreases. O Capital and labor increase.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Isocost and Isoprofit Curve Analysis

An isocost curve in the production theory that is a crucial part of economics depicts different combinations of factor inputs at a given market cost. In other words, this shows all the combinations of production factors that cost the same for the firm to employ. Usually, this can be depicted as a downward sloping straight line when the firms act as the price-takers in the factor markets. The slope of this mainly depicts the relative prices of different production factors.

Question

A firm produces output according to a production function:
Q = F(K,L) = min {4K,4L).
a. How much output is produced when K= 2 and L = 1?
unit(s)
b. If the wage rate is $60 per hour and the rental rate on capital is $40 per hour, what is the cost-minimizing input mix for producing 8
units of output?
Capital:
Labor:
c. How does your answer to part b change if the wage rate decreases to $40 per hour but the rental rate on capital remains at $40 per
hour?
O Capital decreases and labor increases.
O It does not change.
O Capital increases and labor decreases.
O Capital and labor increase.

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