The graph below shows a firm's isoquant for output q=30. Initially the firm produces at point A, where it employs 20 units of physical capital ("machines") and 45 workers. 90 K 80 70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70 80 90 The firm must pay $6 for each unit of physical capital it uses, and it pays $24 for each unit of labor it employs. a. Draw the firm's isocost line through point A. b. Calculate the firm's total production cost and its average total cost at point A. Show your work. c. Given the costs of capital and labor, how can we tell that point A is not the long-run profit-maximizing input mix for the firm when it produces 30 units of output? Starting at point A, does the firm want to use more labor or more capital? Explain. d. What would be the firm's long-run optimal input mix, given that it produces 30 units of output? (You might not be able to identify the optimal mix exactly, but use the graph to estimate it as best you can.) Mark the optimal input mix as point B on your graph, and explain why you think your point B would be the firm's best long-run choice. e. Calculate the firm's total production cost and its average total cost at your point B. Show your work.
The graph below shows a firm's isoquant for output q=30. Initially the firm produces at point A, where it employs 20 units of physical capital ("machines") and 45 workers. 90 K 80 70 60 50 40 30 20 10 0 0 10 20 30 40 50 60 70 80 90 The firm must pay $6 for each unit of physical capital it uses, and it pays $24 for each unit of labor it employs. a. Draw the firm's isocost line through point A. b. Calculate the firm's total production cost and its average total cost at point A. Show your work. c. Given the costs of capital and labor, how can we tell that point A is not the long-run profit-maximizing input mix for the firm when it produces 30 units of output? Starting at point A, does the firm want to use more labor or more capital? Explain. d. What would be the firm's long-run optimal input mix, given that it produces 30 units of output? (You might not be able to identify the optimal mix exactly, but use the graph to estimate it as best you can.) Mark the optimal input mix as point B on your graph, and explain why you think your point B would be the firm's best long-run choice. e. Calculate the firm's total production cost and its average total cost at your point B. Show your work.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![The graph below shows a firm's isoquant for output q = 30. Initially the firm
produces at point A, where it employs 20 units of physical capital ("machines") and 45
workers.
90
K 80
70
60
50
40
30
20
10
0
0
10 20 30 40 50 60 70 80 90
The firm must pay $6 for each unit of physical capital it uses, and it pays $24 for each
unit of labor it employs.
a. Draw the firm's isocost line through point A.
b. Calculate the firm's total production cost and its average total cost at point A. Show
your work.
c. Given the costs of capital and labor, how can we tell that point A is not the long-run
profit-maximizing input mix for the firm when it produces 30 units of output? Starting at
point A, does the firm want to use more labor or more capital? Explain.
d. What would be the firm's long-run optimal input mix, given that it produces 30 units of
output? (You might not be able to identify the optimal mix exactly, but use the graph to
estimate it as best you can.) Mark the optimal input mix as point B on your graph, and
explain why you think your point B would be the firm's best long-run choice.
e. Calculate the firm's total production cost and its average total cost at your point B.
Show your work.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F772271c8-f824-4e87-b2fd-8e1031c536b2%2F142724d0-a5c0-42c2-91f4-9fccaa9ce563%2Ff0zqh1_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The graph below shows a firm's isoquant for output q = 30. Initially the firm
produces at point A, where it employs 20 units of physical capital ("machines") and 45
workers.
90
K 80
70
60
50
40
30
20
10
0
0
10 20 30 40 50 60 70 80 90
The firm must pay $6 for each unit of physical capital it uses, and it pays $24 for each
unit of labor it employs.
a. Draw the firm's isocost line through point A.
b. Calculate the firm's total production cost and its average total cost at point A. Show
your work.
c. Given the costs of capital and labor, how can we tell that point A is not the long-run
profit-maximizing input mix for the firm when it produces 30 units of output? Starting at
point A, does the firm want to use more labor or more capital? Explain.
d. What would be the firm's long-run optimal input mix, given that it produces 30 units of
output? (You might not be able to identify the optimal mix exactly, but use the graph to
estimate it as best you can.) Mark the optimal input mix as point B on your graph, and
explain why you think your point B would be the firm's best long-run choice.
e. Calculate the firm's total production cost and its average total cost at your point B.
Show your work.
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