Quiz 4 Solutions
Question 1
MP
L1
=80 2L
1
and MP
L2
=50 2L
2
L
1
+ L
2
=60
(1 marks)
MP
L1
=80 2(60L
2
)=80120+L
2
=L
2
40
MP
L1
=MP
L2
(1 marks)
L
2
40=50 2L
2
,
3L
2
=90,
L
2
=30 and thus L
1
=30
(1 mark)
In order to calculate how much output is produced in each plant we need to draw the MP
curves and calculate the are within the curves up to the point where labour equals 30.
The graphs are provided at the end of this document.
The calculation goes as follows.
For Plant 1 we need to calculate the area of the ABC triangle and the area of the CBDO
rectangle.
ABC=1/2(30)(60)=900
CBD0=(30)(20)=600
Thus output produced in plant 1 is 1500
The same procedure follows in calculating output for plant 2
EFH=1/2(30)(30)=450
HFG0=(30)(20)=600
Thus output produced in plant 2 is 1050
Total output produced come down to 2550
(2 marks for correct answers on individual output)
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View Full DocumentQuestion 2
Students are given Q
A
=10K
A
1/2
L
A
1/2
andQ
B
=20K
B
1/2
L
B
1/2
as well as the respective ratios of
Marginal Products: MP
K
A
/ MP
L
A
=L
A
/K
A
and MP
K
B
/ MP
L
B
=L
B
/K
B
Students need to figure out that K
A
+K
B
=100 and L
A
+L
B
=100
in order to solve the problem
correctly. So we know that we can allocate 100 units of capital and labour between the 2
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 Fall '11
 Prescott

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