econ204-hw5 - ECON 204 Study Questions 5 Profit...

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ECON 204 Study Questions 5 Profit maximization, Cost Minimization 1) Acme Co. is currently producing 90 widgets/day using 100 worker hours and 50 Widge-o-matic machine hours. At this input bundle, the TRS(Technical Rate of Substitution) = -2 (assuming machines are on the vertical axis and worker hours are on the horizontal axis). The current price for another worker hour is $10/hour, while the rental price for a Widge-o-matic machine is $20/hour. (a) Is Acme Co. producing the 90/day in the cost minimizing way? If not, should it us more worker hours and less Widge-o-matic hours, or fewer worker hours and more Widge-o-matic hours? (Briefly explain your answer) (b) Depict your answer to (a) by sketching an isoquant and isocost curves with Widge-omatic hours on the vertical axis and worker hours on the horizontal axis. 2) Big Bob runs a warehouse. Suppose he can choose between two types of workers: fork lift operators and box packers. Denote total forklift operator hours as g G and total box packer hours as
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This note was uploaded on 01/06/2010 for the course ECONOMICS econ204 taught by Professor Izakatiyas during the Spring '09 term at Sabancı University.

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