Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 10, Problem 4.1P
(a)
To determine
Which process will be employed.
(b)
To determine
The total variable cost curve.
(c)
To determine
The demand for capital and labor.
(d)
To determine
The demand for capital and labor.
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II. Helping Conchita-Crem to minimize costs
Suppose that the labor cost of Conchita-crem is $20 USD per hour, and the cost of capital is
$5 USD per hour. Suppose the production function for conchas is q =
10L/2K2
a) José Antonio produces 1000 conchas. He is currently using 100 workers and 100
ovens. Is he optimizing his use of inputs of production?
b) What is the rule to optimize the use of inputs of production?
c) Find the optimal level of labor and capital for Conchita-Crem. What is its total cost?
d) Now suppose that the rental price of ovens for Conchita-Crem increases 100%.
Would the production change? What would be now the rule to efficiently use inputs
of production? How much labor and capital be used? What is the total cost now?
Compare it to your answer in c.
e) Find the input demand functions for capital and labor. Remember these functions
specify the amount of labor or capital that Conchita-Crem will use as a function of
production level q.
f) Suppose now that José Antonio…
Rather than have all the tasks in a production setting being done by the same person, but by different people is know as
Let's play around with the concepts of total cost versus marginal cost Suppose a grocery store figures out that it
costs $500 per week to hire a full time worker who can fill pickup orders. Create a table with room for 5 columns and 6 rows in
your notes Use the top row for titles. The first (left) column should be titled Number of Workers and should have 0, 1, 2, 3, 4
as values. We're going to analyze whether the store should hire 0, 1, 2, 3 or 4 workers. Title the next column Total Cost (TC)
and the third column Marginal Cost (MC). Put an X in the MC square corresponding to 0 workers. That would be the cost of
going from negative 1 workers to 0 workers, let's leave it blank YOu'll see that marginal columns tend to start across from
the first unit. We'll use the remaining columns later.
What is the Marginal Cost per week of hiring the 4th worker?
$500
O $1,000
O $1,500
$2,000
Chapter 10 Solutions
Principles of Economics (12th Edition)
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