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 7, Problem 3.1P
(a)
To determine
Total cost of each technique.
(b)
To determine
How may labor units are employed at each level of output.
(c)
To determine
Graphical illustration of total cost.
(d)
To determine
Total cost of each technique.
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For a firm to maximize profit, it must minimize the cost of producing whatever quantity it produces. Use the isocost and isoquant tools to present a firm that is choosing the optimal levels of labor and capital (i.e., tools) to produce a certain quantity and a certain cost. Then, show in your diagram how this firm would respond if it were to expand and spend more on its inputs, assuming it is best for the firm to become more “capital intensive” as it grows. Comment on WHY a firm might best become more capital intensive as it expands, even when the relative prices of labor and capital remain unchanged.
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(Enter your…
Suppose that widgets can be produced using two different production techniques, A and B. The following table provides the total input
requirements for each of five different total output levels.
Q = 1
Tech. K L
A
B
Q=2
K L
4 1 6 2
13
Total
Cost
NO
K
2 5
Assuming that the price of labor (P₁) is $1 and the price of capital (P) is $3, calculate the total cost of production for each of the five
levels of output using the optimal (least-cost) technology at each level.
To do this, complete the table below by calculating the total cost of production, filling in the missing values using the optimal (least-cost)
technology at each level. (Enter your responses as whole numbers.)
Q=5
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$ 20 $ 27
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K L
9 4
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How many labor hours (units of labor) would be employed at each level of output? How many machine hours (units of capital)?
To answer this, complete the table below for the units of labor and units of capital that would be used to produce each level of output.…
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