# 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 capitalMethod 2: 20 units of labor, 40 units of capitalMethod 3: 10 units of labor, 70 units of capitalQuestionIf 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 \$200/unit?

Question
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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

Question

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 \$200/unit?

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Step 1

A small company use various combinations of capital and labor in production. These combinations are given in the table.

Step 2

If the cost of hiring labor is \$100 per unit and a unit of capital costs \$400. Then the cost of production is:

Step 3

If the cost of labor rises to \$200 per uni...

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