A chair manufacturer hires its assembly-line labor for $5 an hour and calculates that the rental cost of its machinery is $10 per hour. Suppose that a chair can be produced using 4 hours of labor or machinery in any combination. If the firm is currently using 2 hours of labor for every two hours of machine time, is it minimizing its cost of production? If so, why? If not, how can it improve the situation? The firm O A. is currently minimizing its cost of production because its marginal rate of technical substitution is greater than the ratio of input prices. OB. is not currently minimizing its cost of production because the ratio of the marginal product of labor to the marginal product of capital is less than the ratio of the wage rate to the rental cost. OC. is currently minimizing its cost of production because its marginal rate of technical substitution equals the ratio of input prices. O D. is not currently minimizing its cost of production because the marginal product of labor divided by the wage is greater than the marginal product of capital divided by the rental cost. O E. is not currently minimizing its cost of production because the ratio of the
A chair manufacturer hires its assembly-line labor for $5 an hour and calculates that the rental cost of its machinery is $10 per hour. Suppose that a chair can be produced using 4 hours of labor or machinery in any combination. If the firm is currently using 2 hours of labor for every two hours of machine time, is it minimizing its cost of production? If so, why? If not, how can it improve the situation? The firm O A. is currently minimizing its cost of production because its marginal rate of technical substitution is greater than the ratio of input prices. OB. is not currently minimizing its cost of production because the ratio of the marginal product of labor to the marginal product of capital is less than the ratio of the wage rate to the rental cost. OC. is currently minimizing its cost of production because its marginal rate of technical substitution equals the ratio of input prices. O D. is not currently minimizing its cost of production because the marginal product of labor divided by the wage is greater than the marginal product of capital divided by the rental cost. O E. is not currently minimizing its cost of production because the ratio of the
Chapter11: The Firm: Production And Costs
Section: Chapter Questions
Problem 15P
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