Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 25, Problem 8CQ
To determine
Explain whether hiring of labor and capital minimizes the cost of dressmakers.
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A manager hires labor and rents capital equipment in a very competitive market. Currently the wage rate is $12 per hour and capital is rented at $8 per hour. If the marginal product of labor is 60 units of output per hour and the marginal product of capital is 45 units of output per hour, is the firm using the cost-minimizing combination of labor and capital? If not, should the firm increase or decrease the amount of capital used in its production process?
Economics: Industrial Economics
Question: 1
A firm produces output according to the following production function:
q = 10 K^1/4 L^1/4
The price of capital is r = 9 and the price of labor is w = 25 and there is a set-up cost F = 90 that the firm only pays if it decides to produce in the market. If the firm wants to produce 'q' units of output, solve the cost minimization problem. Obtain total cost C* (as a function of output level q).
The firm is operating within a perfectly competitive industry. Use the solution to the cost minimization problem to solve the profit maximization problem of this firm for a given price p. Then, knowing that the firm is producing 30 units at maximum profit, do the following:
Determine the market price. Please show work.
a. 10
b. 20
c. 12
d. 18
Question 2:
A firm produces output according to the following production function:
q = 10 K^1/4 L^1/4
The price of capital is r = 9 and the price of labor is w = 25 and there is a set-up cost F = 90 that the firm…
Consider a firm that is perfectly competitive in the market for inputs and outputs. The firm hires two types of workers: low-skill (high school graduates and high school dropouts) and high-skill (undergraduate and postgraduate degree) workers. The firm compensates high-skilled workers at the rate w H and low-skill workers at the rate w L . It produces the output subject to a Cobb-Douglas production technology F(L,H) = (AH) α (L) β , where H - is the amount of high-skill hours, L - the amount of low-skill hours, and A - the technology parameter that augments the productivity of the high-skill labour.
1. Find the range of values of α and β that ensure that the production technology has (a) diminishing marginal product of high-skill labour (b) diminishing marginal product of low-skill labour (c) complementarity between high-skill and low-skill labour
2. What is the example of a firm with production technology described in 1. ? For the remained of the question consider β = 0.5 and α = 0.1:…
Chapter 25 Solutions
Economics: Private and Public Choice (MindTap Course List)
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