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(v) To minimise cost, Woodmaster would choose K = 4 x and L=-1 x (vi) Minimum cost to produce Q=0.5 x 2 is 0 x

(v) To minimise cost, Woodmaster would choose K = 4 x and L=-1 x (vi) Minimum cost to produce Q=0.5 x 2 is 0 x

Microeconomics: Principles & Policy
Microeconomics: Principles & Policy
14th Edition
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:William J. Baumol, Alan S. Blinder, John L. Solow
Chapter7: Production, Inputs, And Cost: Building Blocks For Supply Analysis
Section: Chapter Questions
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Woodmaster uses labour (L) and capital (K) to produce furniture (Q). Woodmaster's production function is given by Q=L+K¹, where L≥ 0, K≥ 0, Q ≥ 0. (i) One of the following (L, K) bundles is NOT on the same isoquant as others: (0,36), (3,9), (5,2), (6,0). In that bundle, amount of labour (L) is 5 and amount of capital (K) is 2 Please use up to two decimal points (if necessary) for parts (ii) - (v) below. Answers to all questions are free of units (i.e., all answers are in terms of numbers). (ii) Suppose Woodmaster uses 9 units of labour and 4 units of capital. At that point, i.e. (L, K) = (9, 4), marginal product of labour (MPL) is 1 and marginal product of capital (MPK) is 0.25 Let w and denote the price of labour and price of capital respectively. Suppose r = 8, w = 32, and Woodmaster's production target is Q = 2. (iii) To minimise cost at given prices for inputs, Woodmaster chooses K = 4 and L=0 (iv) Minimum cost to produce Q=2 is 32 Due to economic downturn, demand for Woodmaster's product has halved. Now, Woodmaster's production target is Q = 0.5 x 2. (v) To minimise cost, Woodmaster would choose K = 4 X and L=-1 X (vi) Minimum cost to produce Q=0.5 x 2 is 0 X (vii) A new owner has taken over Woodmaster and renamed it Masterwood. The new motto at Masterwood is to maximise output. If Masterwood faces the same input prices as Woodmaster and can spend at most 80 on two inputs, the maximum possible output Masterwood can produce is 3.5
Transcribed Image Text:Woodmaster uses labour (L) and capital (K) to produce furniture (Q). Woodmaster's production function is given by Q=L+K¹, where L≥ 0, K≥ 0, Q ≥ 0. (i) One of the following (L, K) bundles is NOT on the same isoquant as others: (0,36), (3,9), (5,2), (6,0). In that bundle, amount of labour (L) is 5 and amount of capital (K) is 2 Please use up to two decimal points (if necessary) for parts (ii) - (v) below. Answers to all questions are free of units (i.e., all answers are in terms of numbers). (ii) Suppose Woodmaster uses 9 units of labour and 4 units of capital. At that point, i.e. (L, K) = (9, 4), marginal product of labour (MPL) is 1 and marginal product of capital (MPK) is 0.25 Let w and denote the price of labour and price of capital respectively. Suppose r = 8, w = 32, and Woodmaster's production target is Q = 2. (iii) To minimise cost at given prices for inputs, Woodmaster chooses K = 4 and L=0 (iv) Minimum cost to produce Q=2 is 32 Due to economic downturn, demand for Woodmaster's product has halved. Now, Woodmaster's production target is Q = 0.5 x 2. (v) To minimise cost, Woodmaster would choose K = 4 X and L=-1 X (vi) Minimum cost to produce Q=0.5 x 2 is 0 X (vii) A new owner has taken over Woodmaster and renamed it Masterwood. The new motto at Masterwood is to maximise output. If Masterwood faces the same input prices as Woodmaster and can spend at most 80 on two inputs, the maximum possible output Masterwood can produce is 3.5
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