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- Discuss the marginal rate of substitution and its role in the production function.what is the marginal rate of substitution when the price of coffee is $1.00 per ounce? the prof said the answer is -2.For each of the following cases, determine whether the firm should (A) Use more labor and less capital, or (B) Use more capital and less labor. 1. The marginal rate of technical substitution is 2 (i.e., the marginal product of labor is twice the marginal product of capital) and the input price ratio is 3 (i.e., a unit of labor costs three times as much as a unit of capital) 2. The marginal rate of technical substitution is 2 (i.e., the marginal product of labor is twice the marginal product of capital) and the input price ratio is 1 (i.e., a unit of labor costs the same as a unit of capital) 3. The marginal rate of technical substitution is initially equal to the input price ratio, but the firm's machines depreciate, so that the marginal product of capital decreases. 4. The marginal rate of technical substitution is initially equal to the input price ratio, but the firm successfully negotiates a lower rate of rent for their machines, so that the price of capital decreases. 5. The…
- Suppose a firm is planning to replace a labor intensive production process with an automated robot production line. Calculate the marginal rate of technical substitution (MRTS) using the following information. Labor Intensive Production: 24 workers / 3 machines Automated Robot Production: 10 workers / 30 machines Assume both production process can produce the same level of output.Assume a technological change in production that makes both inputs, capital and labour more productive, but that increases more the productivity of capital than the productivity of labour. Explain how this change translates into the shape of the isoquant curves and in the marginal rate of technical substitution. Provide graphs to illustrate your arguments.There is no difference between the law of diminishing marginal returns and the law of diminishing marginal rate of technical substitution. True or False. Explain and offer examples to further illustrate your explanation.