A bottling company uses two inputs to produce bottles of the soft drink Sludge: bottling machines (K) and workers (L). The isoquants have the usual smooth shape. The machines cost $1,000 per day to run (r), and the workers eam $200 per day (w). At the current level of production, the marginal product of machines (MP) is an additional 123 bottles per day, and the marginal product of labor (MPL) is 69 more bottles per day. Is this firm producing at minimum cost? If it is minimizing cost, explain why. If it is not minimizing cost, explain how the firm should change the ratio of inputs it uses to lower its cost. The bottling company OA. is not minimizing the cost of production because MP/r> MP w and should use less labor and more machines. OB. is not minimizing the cost of production because MPK/MP = riw and should use more labor and fewer machines. OC. is not minimizing the cost of production because MPK/r< MP w and should use more labor d fewer machines. O D. is minimizing the cost of production because MPk/r = MP w. OE. is not minimizing the cost of production because MPK/r < MP w and should use less labor and more machines.
A bottling company uses two inputs to produce bottles of the soft drink Sludge: bottling machines (K) and workers (L). The isoquants have the usual smooth shape. The machines cost $1,000 per day to run (r), and the workers eam $200 per day (w). At the current level of production, the marginal product of machines (MP) is an additional 123 bottles per day, and the marginal product of labor (MPL) is 69 more bottles per day. Is this firm producing at minimum cost? If it is minimizing cost, explain why. If it is not minimizing cost, explain how the firm should change the ratio of inputs it uses to lower its cost. The bottling company OA. is not minimizing the cost of production because MP/r> MP w and should use less labor and more machines. OB. is not minimizing the cost of production because MPK/MP = riw and should use more labor and fewer machines. OC. is not minimizing the cost of production because MPK/r< MP w and should use more labor d fewer machines. O D. is minimizing the cost of production because MPk/r = MP w. OE. is not minimizing the cost of production because MPK/r < MP w and should use less labor and more machines.
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter7: Production Economics
Section: Chapter Questions
Problem 11E
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Transcribed Image Text:A bottling company uses two inputs to produce bottles of the soft drink Sludge: bottling machines (K) and workers (L). The isoguants have the usual smooth shape.
The machines cost $1,000 per day to run (r), and the workers earn $200 per day (w). At the current level of production, the marginal product of machines (MP) is an
additional 123 bottles per day, and the marginal product of labor (MP ) is 69 more bottles per day. Is this firm producing
minimum cost? If it is minimizing cost,
se
explain why. If it is not minimizing cost, explain how the firm should change the ratio of inputs it uses to lower its cost.
The bottling company
se
O A. is not minimizing the cost e
production because MP/r> MP, /w and should use less labor and more machines.
O B. is not minimizing the cost of production because MPK/MP, = r/w and should use more labor and fewer machines.
O C. is not minimizing the cost of production because MPK/r< MP w and should use more labor ad fewer machines.
O D. is minimizing the cost of production because MPK/r = MP, /w.
O E. is not minimizing the cost of production because MPK/r< MP /w and should use less labor and more machines.
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