Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 7.A, Problem 1TY
To determine
Budget line and the indifference curve of the firm.
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Suppose the wage rate for labor is $20 an hour and the rental rate for capital is $50 per hour. Based on this information, please answer the questions appearing below the graph. a. Draw the iso-cost line associated with an hourly budget of $1,000. b. What is the least-cost level of capital and labor this business should utilize when packaging 1,000 cases of fruit juice? How did you arrive at this answer? C. How much does it cost this business to package 1,000 cases of fruit juice? If the firm can sell the juice for $50 per case, what is its accounting profit?
A firm currently uses 40 units of labor (L) and 20 units of capital (K) to produce 400 units ofoutput. Input prices equal $30 for labor and $60 for capital, while the marginal products are 6 for labor and 3 forcapital. To minimize the cost of producing its current level of output, should the firm use more L and less K,more K and less L, or leave its input combination unchanged? Explain your answer.
Suppose that the production function for Hannah and Sam's home remodeling business is
Q=f(L,K)
Q=1040.2K0.3
Assume the wage rate is $8,000 per week and the cost of renting a unit of capital is $2,000 per week.
a. What is the least-cost input combination for remodeling 100 square feet each week?
Instructions: Round your answers to 2 decimal places.
units of labor and
units of capital.
b. What is the total cost?
Instructions: Round your answer to 2 decimal places.
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