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
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
Chapter9: Production Functions
Section: Chapter Questions
Problem 9.3P
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Transcribed Image Text: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 marginal rate of technical substitution is initially equal to the input price ratio, but a new
organizational plan increases the marginal product of labor.
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