MICROECONOMICS (LL)-W/ACCESS >CUSTOM<
11th Edition
ISBN: 9781264207718
Author: Colander
Publisher: MCG CUSTOM
expand_more
expand_more
format_list_bulleted
Question
Chapter 17.A, Problem 8QE
(a)
To determine
Determine the proposal that would be adopted.
(b)
To determine
Determine the choice of the firm if the price of labor increases.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose a brewery uses a Cobb-Douglas production function for his production. He studies the
production process and finds the following. An additional machine-hour of fermentation capacity
would increase output by 600 bottles per day (i. e. MPK = 600). An additional man-hour of labor
would increase output by 1200 bottles per day (i. e. MP₁ = 1200). The price of a man-hour of
labor is $40 per hour. The price of a machine-hour of fermentation capacity is $8 per hour.
1. Is the brewery currently minimizing its cost of production? Check using the minimization
condition.
2. It turns out, the brewery is not optimally choosing the factors of production. To lower its
production cost, which factor of production should the brewery increase and which factor
should he decrease?
3. Suppose that the price of a machine-hour of fermentation capacity rises to $20 per hour. How
does this change the answer from part 1?
The firm's production function is given as follows: qx = f(Lx, Kx). qx represents the output produced by the firm, Lx represents the labor input and Kx the capital input. In the long-run, the firm uses both inputs to
produce output.
An increase in the supply of capital (K) reduces the cost of capital from $6 per unit to $2 per unit. As a result, the firm's demand for the labor input (L) decreases from 200 to 120 units.
Based on this information, the cross-price elasticity of labor demand is:
O a. 0.50
O b.-0.25
Oc. 0.25
O d.0.75
Question 5:
Suppose a brewery uses a Cobb-Douglas production
function for his production. He studies the production
process and finds the following. An additional
machine-hour of fermentation capacity would
increase output by 500 bottles per day
(i.e. MPK = 500). An additional man-hour of labor
would increase output by 1000 bottles per day
(i.e. MPL = 1000). The price of a man-hour of
labor is $50 per hour. The price of a machine-hour of
fermentation capacity is $5 per hour.
2. It turns out, the brewery is not optimally chossing
the factors of production. To lower its production
cost, which factor of production should the
brewery increase and which factor should he
decrease?
Chapter 17 Solutions
MICROECONOMICS (LL)-W/ACCESS >CUSTOM<
Ch. 17.1 - Prob. 1QCh. 17.1 - Prob. 2QCh. 17.1 - Prob. 3QCh. 17.1 - Prob. 4QCh. 17.1 - Prob. 5QCh. 17.1 - Prob. 6QCh. 17.1 - Prob. 7QCh. 17.1 - Prob. 8QCh. 17.1 - Prob. 9QCh. 17.1 - Prob. 10Q
Ch. 17.A - Prob. 1QECh. 17.A - Prob. 2QECh. 17.A - Prob. 3QECh. 17.A - Prob. 4QECh. 17.A - Prob. 5QECh. 17.A - Prob. 6QECh. 17.A - Prob. 7QECh. 17.A - Prob. 8QECh. 17.W - Prob. 1QECh. 17.W - Prob. 2QECh. 17.W - Prob. 3QECh. 17.W - Prob. 4QECh. 17.W - Prob. 5QECh. 17.W - Prob. 6QECh. 17.W - Prob. 7QECh. 17.W - Prob. 8QECh. 17.W - Prob. 9QECh. 17.W - Prob. 10QECh. 17.W - Prob. 1QAPCh. 17.W - Prob. 2QAPCh. 17.W - Prob. 3QAPCh. 17.W - Prob. 4QAPCh. 17.W - Prob. 5QAPCh. 17.W - Prob. 1IPCh. 17.W - Prob. 2IPCh. 17.W - Prob. 3IPCh. 17.W - Prob. 4IPCh. 17.W1 - Prob. 1QCh. 17.W1 - Prob. 2QCh. 17.W1 - Prob. 3QCh. 17.W1 - Prob. 4QCh. 17.W1 - Prob. 5QCh. 17.W1 - Prob. 6QCh. 17.W1 - Prob. 7QCh. 17.W1 - Prob. 8QCh. 17.W1 - Prob. 9QCh. 17.W1 - Prob. 10QCh. 17 - Prob. 1QECh. 17 - Prob. 2QECh. 17 - Prob. 3QECh. 17 - Prob. 4QECh. 17 - Prob. 5QECh. 17 - Prob. 6QECh. 17 - Prob. 7QECh. 17 - Prob. 8QECh. 17 - Prob. 9QECh. 17 - Prob. 10QECh. 17 - Prob. 11QECh. 17 - Prob. 12QECh. 17 - Prob. 13QECh. 17 - Prob. 14QECh. 17 - Prob. 15QECh. 17 - Prob. 16QECh. 17 - Prob. 17QECh. 17 - Prob. 18QECh. 17 - Prob. 19QECh. 17 - Prob. 20QECh. 17 - Prob. 21QECh. 17 - Prob. 22QECh. 17 - Prob. 23QECh. 17 - Prob. 24QECh. 17 - Prob. 25QECh. 17 - Prob. 26QECh. 17 - Prob. 1QAPCh. 17 - Prob. 2QAPCh. 17 - Prob. 3QAPCh. 17 - Prob. 4QAPCh. 17 - Prob. 5QAPCh. 17 - Prob. 6QAPCh. 17 - Prob. 1IPCh. 17 - Prob. 2IPCh. 17 - Prob. 3IPCh. 17 - Prob. 4IPCh. 17 - Prob. 5IPCh. 17 - Prob. 6IPCh. 17 - Prob. 7IPCh. 17 - Prob. 8IPCh. 17 - Prob. 9IPCh. 17 - Prob. 10IPCh. 17 - Prob. 11IP
Knowledge Booster
Similar questions
- Question 5: Suppose a brewery uses a Cobb-Douglas production function for his production. He studies the production process and finds the following. An additional machine-hour of fermentation capacity would increase output by 500 bottles per day (i. e. MPK = 500). An additional man-hour of labor would increase output by 1000 bottles per day (i. e. MPL = 1000). The price of a man- hour of labor is $50 per hour. The price of a machine-hour of fermentation capacity is $5 per hour. 1. Is the brewery currently minimizing its cost of production? Check using the minimization condition. 2. It turns out, the brewery is not optimally chossing the factors of production. To lower its production cost, which factor of production should the brewery increase and which factor should he decrease? 3. Suppose that the price of a machine-hour of fermentation capacity rises to $25 per hour. How does this change the answer from part 1?arrow_forwardSuppose that a firm’s production function is q =L0.5K0.5. This means that the marginal rate of technical substitution is K/L.The cost of a unit of labour is $20 and the cost of a unit of capital is $80. The firm wants to produce 50 units of output. If both capital and labour are variable, how many units of labour (L) and how many units of capital (K) should be hired in the long run? A. K = 25, L =100 B. K = 10, L = 100 C. K = 25, L =10 D. K = 7, L = 28arrow_forwardA competitive firm uses two variable factors to produce its output, with a production function q = min{x1, x2}. The price of factor 1 is £8 and the price of factor 2 is £5. Due to a lack of warehouse space, the company cannot use more than 10 units of x1. The firm must pay a fixed cost of £80 if it produces any positive amount but doesn't have to pay this cost if it produces no output. What is the smallest integer price that would make a firm willing to produce a positive amount? А. £44 В. £41 С. £29 D. £13 Е. £21arrow_forward
- Consider a firm that has production function f(L,K)= 3L2/3K1/3. What is the expression for this firm’s Marginal Product of capital? MPK(L,K)= 3L2/3/K1/3. MPK(L,K)= 3L2/3/K2/3. MPK(L,K)= L1/3/K1/3. MPK(L,K)= L2/3/K2/3. MPK(L,K)= 2L2/3/K1/3.arrow_forwardSuppose a firm uses a single input to produce a single output according to a production function f(x) = 10√x where x is the number of units of input. The output initially sells for £120 per unit. The input costs £20 per unit. A change in the market causes the product price to increase from £120 per unit to £200 per unit, all else equal. How does this change in product price affect the firm's profit maximizing level of profits? a. Profits increase by £16,000 Ob. Profits do not change Profits increase by £8,000 d. None of the other answers is correct Profits increase by £9,000 f. Profits increase by £18,000 g. Profits increase by £50,000 h. Profits increase by £32,000 C. e.arrow_forwardSuppose Marcus produces chocolate with two inputs: factory and labour. The rent of the factory is $3,000 per week, and the wage of each worker is $2,000 per week. When Marcus produces 200 pounds of chocolate every week, he employs 2 workers. Calculate the fixed cost (FC), variable cost (VC), total cost (TC), average fixed cost (AFC), average variable cost (AVC), and average total cost (ATC) of producing 200 pounds of chocolate. The total cost of producing 201 pounds of chocolate is $7030. Calculate the marginal cost (MC) of producing the 201st pound of chocolate.arrow_forward
- a) Explain what is meant by the terms marginal cost and sunk cost in production theory, and give some examples that can illustrate the concepts.Explain whether these terms are important for a profit-maximizing company that sells a finished item in a market with a fixed market price. b) Production in a business can be described by the product function y = f(v), where y is the number of units produced of the item, and v is the number of units of the input factor. The company can purchase the input factor at a fixed price per unit and has no fixed costs.Suppose that production is characterized by declining scale yield. Explain what it means and what in such a case can be said about the marginal costs enterprise.Use charts to illustrate the scale yield and marginal costs in this case.Pay the close attention to the axis denominations.arrow_forwardConsider a firm that produces a good using capital and labor. We denote by L the quantity of labor and by K the quantity of capital. In the short run, the firm has a fixed quantity of capital K. The short- run production function of the firm is given by f (K; L). The marginal product of labor (PmL) reaches its maximum when (a) the marginal product of labor is equal to the average product of labor, that is, PmL = PML. %3D (b) the total product q = f (K; L) %3D reaches its maximum. (c) Both of the above answers are correct. (d) None of the above answers are correct.arrow_forwardA firm has the following production function: q = KL, where q is output, K is capital and L is labor. The price of a unit of capital is $1,000 and the price of a unit of labor is $500. The total cost includes the cost of capital and labor, as well as an additional $200 per unit of output for raw materials. The firm currently runs a single factory with 5 units of capital. Assume that capital is fixed in the short run. (a) How much does it cost to produce q units of output (in the short-run)? [The answer I expect is a particular function of q.] (b) Will the firm produce or shut down in the short run if the price of a unit of output is $300? Explain in at most one sentence.arrow_forward
- Suppose the long-run production function for a competitive firm is f(x1,x2)= min {x1,2x2}. The cost per unit of the first input is w1 and the cost of the second input is w2. .a. Find the cheapest input bundle, i.e. amount of labor and capital, that yields the given output level of y. .b. Draw the conditional input demand functions for labor and capital in the x1-y and x2- y spaces. .c. Write down the formula and draw the graph of the firm’s total cost function as a function of y, using the conditional input demand functions. What is the relationship between the returns to production scale and the behavior of the total costs? .d. Write down the formula and draw the graph of the average cost function, as a function of y. .e. Write down the formula and draw the graph of the marginal cost function, as a function of y.arrow_forwardA company has a production function Q = (K)0.5 + L. For this production function MP, = 1 and MPK = 0.5(K)-0.5. The firm faces w=$50 and r= $1. Keeping r =1, the price of labor, w, must fall to less than $ in order for the firm to use a positive amount of capital to produce 10 units, or the output Q must increase to over units for the firm to use a positive amount of capital, at w=$50.arrow_forwardProblem 1: Your firm has employed an economist to estimate your firm's production function. After gathering the appropriate data, the economist estimates that your is of the form shown below. You also know that capital is fixed at 8 units in the short run. 12 Q=K³L²³ a. Calculate the average product of labor when 27 units of labor are utilized and interpret your result. b. Calculate the marginal product of labor when 27 units of labor are utilized and interpret your result. c. Suppose the firm can hire labor at a wage of $5 per hour and output can be sold at a price of $15 per unit. Determine the profit-maximizing levels of labor and output. d. What is the maximum price of capital at which the firm will still make nonnegative profits?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning