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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
If hiring labor for the winter costs $100/unit and a unit of capital costs
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Chapter 7 Solutions
Principles of Economics 2e
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- Least Cost Method: *Remember the least cost method is a lot like the utility maximizing rule from chapter one. However, here we will make sure that we follow this formula: Marginal Product of Labor/Price of Labor = Marginal Product of Capital/Price of Capital If this ends up being equal then they are using the optimal number of employees and capital (machines). If one is greater then the business would want to use that one more until the numbers become equal. 6)ABC company is using labor and capital to build widgets The last employee produced 20 more widgets and their wage was $10 per hour. The last unit of capital produced 40 more and cost $20. Use the least cost method formula above to state if they are using the least cost Method of production. If they aren't using the least cost method should they use more workers or machines?? Show workarrow_forwardBusinesses wanted to reduce their cost to the minimum without compromising the product quality and violating laws. The total fixed cost decreases if the output increases. Thus the business is left with the variable cost to manage. Notably, the concept of the economies of scale also works for the government, non-profit organizations and individuals. The entity becomes more efficient as it produces more output and reduces cost as a result. The organization can benefit from the economics of scale, consequently, the consumers enjoy lower prices, and the economy expands to increase more demand. For huge businesses, economies of scale provide a competitive advantage over small enterprises. There are two types of economies of scale. The cost that the management can control is internal, while the cause for the cost to decrease attributed to geographic location, government policies, and industry changes are externals. Typically the internal economy of scale is found in large businesses as a…arrow_forwardBusinesses wanted to reduce their cost to the minimum without compromising the product quality and violating laws. The total fixed cost decreases if the output increases. Thus the business is left with the variable cost to manage. Notably, the concept of the economies of scale also works for the government, non-profit organizations and individuals. The entity becomes more efficient as it produces more output and reduces cost as a result. The organization can benefit from the economics of scale, consequently, the consumers enjoy lower prices, and the economy expands to increase more demand. For huge businesses, economies of scale provide a competitive advantage over small enterprises. There are two types of economies of scale. The cost that the management can control is internal, while the cause for the cost to decrease attributed to geographic location, government policies, and industry changes are externals. Typically the internal economy of scale is found in large businesses as a…arrow_forward
- Businesses wanted to reduce their cost to the minimum without compromising the product quality and violating laws. The total fixed cost decreases if the output increases. Thus the business is left with the variable cost to manage. Notably, the concept of the economies of scale also works for the government, non-profit organizations and individuals. The entity becomes more efficient as it produces more output and reduces cost as a result. The organization can benefit from the economics of scale, consequently, the consumers enjoy lower prices, and the economy expands to increase more demand. For huge businesses, economies of scale provide a competitive advantage over small enterprises. There are two types of economies of scale. The cost that the management can control is internal, while the cause for the cost to decrease attributed to geographic location, government policies, and industry changes are externals. Typically the internal economy of scale is found in large businesses as a…arrow_forwardRather than have all the tasks in a production setting being done by the same person, but by different people is know asarrow_forwardCompare and contrast economies of scale and economies of scope. Give an example of each from your own experience or research.arrow_forward
- (1) q=35L + 40K (2) q=L.5K.5 a) For the production functions of (1) and (2) create the isoquants for q = 100, and for q = 144 with K on the vertical axis and L on the horizontal axis. (Use excel's scatter plot to draw these pictures. So, two pictures with two isoquants each.) b) Suppose that K is fixed at K = 9. Using excel draw the total product curves for equation (1). In a separate excel chart draw the marginal product and average product for K = 9 in equation (1). Give an explanation for the shapes of the total product, marginal product, and average product curve.arrow_forwardSuppose the fixed cost of building a nuclear power plant is $1 billion. Suppose also that the only variable cost is the labor of Homer Simpson, and he earns $10 per hour. If the plant generates 1,000 kilowatts each hour, and has already generated 1 billion kilowatts, what can you say about the marginal cost of the next kilowatt? (A) The marginal cost is equal to $0.01. (B) The marginal cost is equal to $1.01. D The marginal cost is falling. The marginal cost is rising.arrow_forward1/3 1/3 Farmer Joe's production function is f(x1, x2) = ", where xị is the number of pounds of lemons he uses and x2 is the number of hours he spends 1/21/2 2wi"wy3/2, where y is the squeezing them. His cost function is c(w1. w2, y) = number of units of lemonade produced. (a) If lemons cost $1 per pound, the wage rate is $1 per hour, and the price of lemonade is p, what is his marginal cost function?arrow_forward
- Introduction to Calculus in Economics: Calculus is a powerful tool used in economics. One of the initial applications areas is the study of a firm, a topic in microeconomics. An important function is the cost function function C(x), the cost of producing items (of whatever they are selling). This question deals with just the cost function C'(x). Problem Set question: The cost, in dollars, of producing a units of a certain item is given by C(x) = 10x10√x - 8. Find the production level that minimizes the average cost per unit. The number of units that minimizes the average cost is Numberarrow_forwardA farmer can produce f(x,y) = 208-√4x² + y² units of produce by utilizing x units of labor and y units of capital. (a) (b) (c) Calculate the marginal productivities of labor and capital when x = 12 and y = 10. Let h be a small number. Use the result of part (a) to determine the approximate effect on production of changing labor from 12 to 12+h units while keeping capital fixed at 10 units. Use part (b) to estimate the change in production when labor decreases from 12 to 11.5 units and capital stays fixed at 10 units. (a) The marginal productivity of labor when x = 12 and y = 10 is (Simplify your answer.)arrow_forwardIntroduction to Calculus in Economics: Calculus is a powerful tool used in economics. One of the initial applications areas is the study of a firm, a topic in microeconomics. An important function is the cost function function C (z), the cost of producing z items (of whatever they are selling). This question deals with just the cost function C (z). Problem Set question: The cost, in dollars, of producing z units of a certain item is given by C (z) = 5z – 8/I – 3. Find the production level that minimizes the average cost per unit. The number of units that minimizes the average cost is Numberarrow_forward
- Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningMicroeconomics: Principles & PolicyEconomicsISBN:9781337794992Author:William J. Baumol, Alan S. Blinder, John L. SolowPublisher:Cengage Learning
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