Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Question
Chapter 5, Problem 5CACQ
To determine
To find:The cost minimizing combination of labor and capital.
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A manager hires labor and rents capital equipment in a very competitive market. Currently the wage rate is $12 per hour and capital is rented at $8 per hour. If the marginal product of labor is 60 units of output per hour and the marginal product of capital is 45 units of output per hour, is the firm using the cost-minimizing combination of labor and capital? If not, should the firm increase or decrease the amount of capital used in its production process?
Roland Umbrellas has a production function given by Q = L0.5K0.5. The wage (W) is $80 per day and the rental per unit of capital (R) is $5 per day. In the long run, how many units of capital will Roland want to buy for each unit of labor?
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Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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- Suppose a firm is producing 2,475 units of output by hiring 50 workers (W = $20 per hour) and 25 units of capital (R = $10 per hour). The marginal product of labor and marginal product of capital are 30 and 15, respectively. Is the firm minimizing the cost of producing 2,475 units of output? Explain.arrow_forwardThe production function of a competitive firm is described by the equation y = 2x11/2 6x21/2. The factor prices are p1 = $3 and p2 = $4 and the firm can hire as much of either factor it wants at these prices. What is the firm’s marginal cost?arrow_forwardMiguel and Jake run a paper company. Each week they need to produce 1,000 reams of paper to ship to their customers. The paper plant's long-run production function is: q= 4K^L+ where q is the number of reams produced, K is the quantity of capital rented, and L is the quantity of labor hired. K For this production, MP, =| L and MP, = 34 K K The weekly cost function for the paper plant is C=10K+2L where C is the total weekly cost How much capital and labor will Miguel and Jake need to rent and hire in order to produce 1,000 reams of paper each week, and how much will hiring these inputs cost them?arrow_forward
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