Quiz6_F10_Key

# Quiz6_F10_Key - 3550 F10 Quiz 6 Key 1. (5 points) Suppose...

This preview shows pages 1–2. Sign up to view the full content.

3550 F10 Quiz 6 Key 1. (5 points) Suppose you are hired as a new manager of a firm producing 20 units of output with 10 units of labor and 4 units of capital. Assume the price of labor is \$60 and the price of capital is \$100 . K d c b a Q = 20 7 8 9 10 L Given the above graph and table: a. In detail, explain the optimizing decisions for minimize cost assuming you can only hire whole numbers of workers but it is possible to hire non-integer units of capital. (Hint: think about the MC and MB of changing L). I consider firing a worker (the 10 th worker)) and replacing the worker with .4 units of K. I save \$60 by firing the worker but need to spend .4*\$100 or \$40 on extra K. I lower total cost by \$20. Then I consider firing the 9 th worker and replacing the worker with .6 units of K. This saves another \$60 on labor but increases the cost of K by \$60. The cost of firing the worker equals the benefit so I do it but stop here. At 8 workers, I minimize total cost. At this point, MRTS= 0.6 and PL/Pk =60/100=0.6.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 03/14/2012 for the course ECON 2243 taught by Professor Henryfors during the Spring '12 term at Abant İzzet Baysal University.

### Page1 / 2

Quiz6_F10_Key - 3550 F10 Quiz 6 Key 1. (5 points) Suppose...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online