homework 4 - JennyKow October23,2010 ECON2023170 Homework#4...

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Jenny Kow October 23, 2010 ECON 2023-170 Homework #4 Chapter 12 2.  4. GM’s decision suggests that the MRC of those 30,000 workers was greater than the Marginal Revenue  Product. GM didn’t reduce employment further because the MRP of the remaining workers exceeds the  Marginal Revenue Cost. Reducing employment by less than 30,000 workers would have left GM with  some employees for whom the Marginal Revenue Cost exceeded the Marginal Revenue Product,  reducing the company’s profits.  6.  Units of Capital Marginal Product of  Capital Units of Labor Marginal Product of  Labor 0 24 21 18 15 9 6 3 1 0 11 9 8 7 6 4 1 1/2 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 a. The least costly combination for the firm is 2 capitals and 4 labors. Marginal product of  Labor/Price of Labor = 7/1; Marginal Product of Capital/Price of Capital = 21/3 = 7/1. The least- cost combination is found by equating the ratios of the marginal products of each input to their  prices. 
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The firm should use 7 capitals and 7 labors as a profit-maximizing combination of labor and capital.  Marginal Revenue Product of Labor / Labor = 1 = 1/1; Marginal Revenue Product of Capital / Price of  Capital = 1 = 3/3. Output is 142 = 96 from capital + 46 from labor. Economic profit is $114 (= $142 - $28).  Yes, least-cost production is part of maximizing profits. The profit-maximizing rule includes the least-cost  rule. 7.  a. Marginal Revenue Product of Labor = $8; Price of Labor = $4; Marginal Revenue Product of  Capital = $8; Price of Capital = $4; Use more of both resources. b. Marginal Revenue Product of Labor = $10; Price of Labor = $12; Marginal Revenue Product of  Capital = $14; Price of Capital = $9; Use less of labor, but more of capital. c. Marginal Revenue Product of Labor = $6; Price of Labor = $6; Marginal Revenue Product of  Capital = $12; Price of Capital = $12; Maximum profit is obtained. d. Marginal Revenue Product of Labor = $22 Price of Labor = $26; Marginal Revenue Product of  Capital = $16; Price of Capital = $19. Use less of both resources.
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This note was uploaded on 11/13/2010 for the course ECON 2023 taught by Professor Badry during the Spring '10 term at Edison College.

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homework 4 - JennyKow October23,2010 ECON2023170 Homework#4...

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