Your company operates with a technology that is characterized by a diminishing rate of technical substitution of labor for capital. Your firm is currently producing 64 units of output using 8 units of capital and 10 units of labor. At that operating point the marginal product of labor is 8 and the marginal product of capital is 4. The rental price of a unit capital is $4 and the wage rate is $2 Is your firm minimizing the total long-run cost of producing the 64 units of output? If so, how do you know? If not, show why not and indicate whether the firm should be using more capital and less labor, or less capital and more labor to produce an output of 64.
Your company operates with a technology that is characterized by a diminishing rate of technical substitution of labor for capital. Your firm is currently producing 64 units of output using 8 units of capital and 10 units of labor. At that operating point the marginal product of labor is 8 and the marginal product of capital is 4. The rental price of a unit capital is $4 and the wage rate is $2 Is your firm minimizing the total long-run cost of producing the 64 units of output? If so, how do you know? If not, show why not and indicate whether the firm should be using more capital and less labor, or less capital and more labor to produce an output of 64.
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter7: Production And Cost In The Firm
Section: Chapter Questions
Problem 19PAE
Related questions
Question
Your company operates with a technology that is characterized by a diminishing rate of technical substitution of labor for capital. Your firm is currently producing 64 units of output using 8 units of capital and 10 units of labor. At that operating point the marginal product of labor is 8 and the marginal product of capital is 4. The rental price of a unit capital is $4 and the wage rate is $2 Is your firm minimizing the total long-run cost of producing the 64 units of output? If so, how do you know? If not, show why not and indicate whether the firm should be using more capital and less labor, or less capital and more labor to produce an output of 64.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Microeconomics: Principles & Policy
Economics
ISBN:
9781337794992
Author:
William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:
Cengage Learning
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning