HW chap 8-2

# Substitutingthisexpressionforcapitalbackintothe

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Unformatted text preview: e input price ratio: MRTSL K = w/r, where w is the wage rate and r is the cost of capital. Again, the marginal rate of technical substitution of labor and capital equals the marginal product of labor divided by the marginal product of capital: http://e z to.mhe c loud.mc gr a w- hill.c om/hm.tpx? todo= pr intvie w 3/9 1/22/2014 Assignme nt Pr int Vie w MRTSL K = MPL /MPK MRTSL K = 2L­0 .8 K0 .3 /3L0 .2 K­0 .7 MRTSL K = 0.667(K/L). Setting this equal to the input price ratio: 0.667(K/L) = 8,000/2,000 K/L = (8,000/2,000)1.5 K/L = 6 K = 6L. That is, 6 units of capital are used with each unit of labor. Substituting this expression for capital back into the production function and solving for labor in terms of output: Q = 10L0 .2 (6L)0 .3 Q = 10(1.712)L0 .5 Q = 17.118L0 .5 L = (Q/17.118)2 L = Q2 /293.016. If output is to equal 500, then Hannah and Sam should use: L = (500)2 /293.016 L = 853.197 units of labor. In turn, capital should equal: K = 6L K = 6(853.197) K = 5,119.181 units. The total cost of production is: C = wL + rK C = 8,000(853.197) + 2,000(5,119.181) C = 6,825,575.04 + 10,238,362.56 C = \$17,063,937.59. 11. awar d: 5 out of 5.00 points Dan's Pizza Company makes frozen pizza. His daily variable cost of making pizzas is http://e z to.mhe c loud.mc gr a w- hill.c om/hm.tpx? todo= pr intvie w 4/9 1/22/2014 Assignme nt Pr int Vie w and his marginal cost is He has an avoidable fixed cost of \$720 per day. a. What is his efficient scale of production? Instructions: Enter your answer as a whole number. 240 b. What is his minimum average cost? Instructions: Enter your answer as a whole number. \$11 Section: Average and Marginal Costs Worksheet Dan's Pizza Company makes frozen pizza. His daily variable cost of making pizzas is and his marginal cost is He has an avoidable fixed cost of \$720 per day. a. What is his efficient scale of production? Instructions: Enter your answer as a whole number. 240 b. What is his minimum average cost? Instructions: Enter your answer as a whole number. \$ 11 Explanation: An efficient scale of production...
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