ou have been hired to replace the manager of a firm that used only two inputs, capital and labor, to produce output. The firm can hire as much labor as it wants at a wage of $20 per hour and can rent as much capital as it wants at a price of $100 per hour. After you look at the company books, you learn that the company has been using capital and labor in amounts that imply a marginal product of labor of 80 and a marginal product of capital of 200. What do you have to do to improve the profitability of the firm as the newly hired manager? Explain

ou have been hired to replace the manager of a firm that used only two inputs, capital and labor, to produce output. The firm can hire as much labor as it wants at a wage of $20 per hour and can rent as much capital as it wants at a price of $100 per hour. After you look at the company books, you learn that the company has been using capital and labor in amounts that imply a marginal product of labor of 80 and a marginal product of capital of 200. What do you have to do to improve the profitability of the firm as the newly hired manager? Explain

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter21: Production And Costs

Section: Chapter Questions

Problem 2QP

See similar textbooks

Similar questions

Suppose a firm is currently maximizing profit by producing 100 units of output per day. It is then discovered that the firm owes $1,000 for a one-time tax violation that occurred a few years ago. The firm now needs to pay the $1,000 to the government no matter what. How should the firm react to this additional cost? The firm should increase output in order to increase revenue enough to cover the additional cost. The firm should continue to produce 100 units of output per day, as the $1,000 is a sunk cost and therefore has no effect on production decisions. The firm should shut down in the short run and start back up in the long run. The firm should decrease output in order to decrease variable costs by $1,000.
You are the chief financial officer for a firm that sells digital music players. Your firm has the following average-total-cost schedule: Your current level of production is 600 devices, all of which have been sold. Someone calls, desperate to buy one of your music players. The caller offers you $550 for it. Should you accept the offer? Why or why not. Single line text.
Suppose you as a business person find that the price of your product is less than minimum average variable cost (AVC). In this case, you should: A) Minimize your losses by producing where P = MC B) Maximize your profits by producing where P = ATC C) Close down because, by producing, your losses will exceed your total fixed costs D) Close down because your total revenue exceeds your total variable costs
Microeconomics II is the most fun course you ever took. Explain? A profit-maximizing competitive firm uses just one input, x. Its production function is q= 4(x)^1/2. The price of out-put is $28 and the factor price is $7. The amount of the factor that the firm demands is?
Rafael quit his job paying him $74,000 per year to be a consultant. Last year he started a business for which he spent $7,000 on Google and Facebook advertisements and paid himself $75,000. Based on this information, what were his economic cost of this new business?
QUESTION 16 Refer to Scenario 7.4 below to answer the question(s) that follow. SCENARIO 7.4: You own and are the only employee of a company that sells custom embroidered pet sweaters. Last year your total revenue was $120,000. Your costs for equipment, rent, and supplies were $30,000. To start this business you invested an amount of your own capital that could pay you a $50,000 a year return. Refer to Scenario 7.4. Your economic profit last year was -$20,000. $40,000. $70,000. $90,000.
Assume you have decided to buy an advertisement in the local newspaper to publicize your new pet grooming service. The cost of the ad is $1,000. You have decided to charge $40 for a dog grooming, and your variable costs are $20 for each dog. How many dogs do you have to groom to break even on the cost of the ad? What is your break-even point if you charge $60 per dog?
A price-taking, profit-maximizing, competitive firm produces output this way: Y = 100K0.5 The company rents capital at rate r to produce output Y. The company only has that one cost, the rental rate of capital, so total costs are rK. The rental cost of capital, r, is 0.2. If the company wants to maximize its profits, how much capital (K) should it rent?
For the last ten years, the Universal Company has produced an average of 100 units per hour, 25 percent of which are defective, yielding 75 good units per hour. The board of directors now demands that top management increases productivity by 10 percent. The directives go out to the employees, who are told that instead of producing 100 units per hour, they must produce 110 units per hour. Responsibility for producing more units falls on the employees, creating stress, frustration, and fear. They try to meet the new demands, but must cut corners to do so. The pressure to raise productivity creates a defect rate of 25 percent and only increases production to 104 units, yielding 78 good units per hour, two fewer than the original 80 good units per hour. Calculate the percentage (%) change in productivity. (Round off to two decimal places).
A firm can produce output using three inputs and the following production technology: q = xxx. The firm is a price-taker in both the markets where it buys its inputs and the one where it sells its output. The price of output is equal to $12 and the prices of all the inputs are equal to $1. a) Find the firm's profit as a function of the input quantities. b) Find the profit-maximizing quantities of the inputs and the quantity of output that is produced. c) Verify that what you have found is the unique global maximum.
SHOW FORMULAS IN EXCEL PLEASE
Making dresses is a labor-intensive process. Indeed, the production function of a dressmaking firm is well described by the equation Q = L − L2/(23*100), where Q denotes the number of dresses per week and L is the number of labor hours per week. The firm’s additional cost of hiring an extra hour of labor is about $5 per hour (wage plus fringe benefits). The firm faces the fixed selling price, P = $40. How much labor should the firm employ? (Round your answer to the nearest whole number.)