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

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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.
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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.

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

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