2. A firm is using 7 units of labor and 100 units of capital to produce 1000 units of goods. At these levels of inputs, the marginal product of labor is 5 and the marginal product of capital is 50. The cost of labor is $15 per unit and the cost of capital is $2 a unit. Is the firm minimizing its costs? If not explain how the firm could save on costs while still producing 1000 units.

2. A firm is using 7 units of labor and 100 units of capital to produce 1000 units of goods. At these levels of inputs, the marginal product of labor is 5 and the marginal product of capital is 50. The cost of labor is $15 per unit and the cost of capital is $2 a unit. Is the firm minimizing its costs? If not explain how the firm could save on costs while still producing 1000 units.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter12: The Cost Of Production

Section: Chapter Questions

Problem 4QR

See similar textbooks

Similar questions

A small company that shovels sidewalks and driveways has 100 homes signed up for its services this winter. It can use various combinations of capital and labor: intensive labor with hand shovels, less labor with snow blowers, and still less labor with a pickup truck that has a snowplow on front. To summarize, the method Choices are: Method 1: 50 units of labor, 10 units of capital Method 2: 20 units of labor, 40 units of capital Method 3: 10 units of labor, 70 units of capital If hiring labor for the winter costs $100/unit and a unit of capital costs 400, what is the best production method? What method should the company use if the cost of labor rises to $20/unit?
Suppose the cost of machines increases to 55, while the cost of labor stays at 40. How would that affect the total cost of the three methods? Which method should the film choose now?
A firm had sales revenue of 1 million last year. It spent 600,000 on labor, 150,000 on capital and 200,000 on materials. What was the firms accounting profit?
Do you think that the taxicab industry in large cities would be subject to significant economies of scale? Why or why not?
What is the difference between economies of scale, constant returns to scale, and diseconomies of scale?