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ANSWERS+TO+EVEN-c5

Managerial Economics

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ANSWERS TO EVEN-NUMBERED PROBLEMS 2. Yes, this statement is consistent with diminishing returns. Average output declines with increases in the number of participants because the marginal product of additional workers keeps falling. 4. In all likelihood, Chrysler's move to 24-hour production was prompted by the high capital cost of building new factories combined with a slowdown in wage growth. With labor cheap relative to capital, a switch to a greater ratio of labor to capital makes economic sense. Increased 24-hour production was in response to the soaring demand for minivans and Jeeps. 6. a. The marginal products for labor and capital are given by: MP L = 10 - L and MP K = 24 - 2K. For L equal to K (in the range 0 to 10), capital's marginal product is greater than labor's. At the same input prices, the firm will use more capital than labor. b. Setting the price of each input equal to its marginal revenue product implies: 100 - 10L = 40, or L = 6, and 240 - 20K = 80, or K = 8.
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