For each of the following assertions, please indicate whether they are true or false. No credit will be given without an explanation as to why your claim is correct.
(a) (4 points) There are two firms: one has production function f (K, L) = K + L and the other has production function f?(K,L) = (K+L)2 ?50. Assertion: These two firms have the same shaped isoquants, but different technology.
(b) (4 points) Assertion: In the short run, if the marginal product of labor curve is decreasing, then it is below the average product of labor curve.
(c) (4 points) A T-shirt company can make 1000 T-shirts with 2 workers and 1 machine. It continues to make 1000 T-shirts if it has more than 2 workers but only 1 machine or 2 workers and more than 1 machine. The company currently produces 1000 shirts per month for its single customer. The price of capital falls, but the firm must still produce 1000 shirts per month. Let all inputs be variable. Assertion: The firm will not hire or fire any workers.
(d) (4 points) A technology firm has a Cobb Douglas production function and measures the marginal rate of technical substitution (MRTSLK) at MPL/MPK = 3. The prices of labor and capital faced by the firm are such that currently W/R = 2. Assertion: The tech firm can lower costs (holding output fixed) by laying off some of its labor force and using more capital.
For each of the following assertions, please indicate whether they are true or false. No credit will be given without an explanation as to why your claim is correct.
(a) (4 points) There are two firms: one has production function f (K, L) = K + L and the other has production function f?(K,L) = (K+L)2 ?50. Assertion: These two firms have the same shaped isoquants, but different technology.
(b) (4 points) Assertion: In the short run, if the marginal product of labor curve is decreasing, then it is below the average product of labor curve.
(c) (4 points) A T-shirt company can make 1000 T-shirts with 2 workers and 1 machine. It continues to make 1000 T-shirts if it has more than 2 workers but only 1 machine or 2 workers and more than 1 machine. The company currently produces 1000 shirts per month for its single customer. The price of capital falls, but the firm must still produce 1000 shirts per month. Let all inputs be variable. Assertion: The firm will not hire or fire any workers.
(d) (4 points) A technology firm has a Cobb Douglas production function and measures the marginal rate of technical substitution (MRTSLK) at MPL/MPK = 3. The prices of labor and capital faced by the firm are such that currently W/R = 2. Assertion: The tech firm can lower costs (holding output fixed) by laying off some of its labor force and using more capital.
Related textbook solutions
Related questions
1.The Widget Company has the following production function.
| Number of Workers | Number of Cases produced |
| 0 | 0 |
| 1 | 9 |
| 2 | 17 |
| 3 | 24 |
| 4 | 30 |
| 5 | 35 |
If widgets sell for $6 each and the wage rate is $33, how many workers will the company hire?
2. Zowie! Surfboards have the following production function.
| Number of Workers | Number of Surfboards Produced |
| 1 | 12 |
| 2 | 21 |
| 3 | 29 |
| 4 | 36 |
| 5 | 42 |
If surfboards sell for $30 and the nominal wage rate is $200, how many workers should the firm employ?
3. The marginal product of labor (measured in units of output) for Expando Corp is given by MPN = A(400 - N) where A measures productivity and N is the number of labor hours used in production. Suppose the price of output is $3 per unit and A = 2.0. What will be the demand for labor if the nominal wage is $18?
4. The marginal product of labor (measured in units of output) for Relient Corp. is given by MPN = A(200 - N) where A measures productivity and N is the number of labor hours used in production. Suppose the price of output is $3 per unit and A = 2.0. What will be the demand for labor if the nominal wage is $30?
5. What is the participation rate if there are 125 million people in the labor force, 100 million people employed, and 25 million not in the labor force?
6. Last year, Linus earned a salary of $25,000 and he spent $24,000, thus saving $1000. At the end of the year, he received a bonus of $1000 and he spent $500 of it, saving the other $500. What was his marginal propensity to consume?
7. Calculate the user cost of capital of a machine that costs $5000 and depreciates at a rate of 25%, when the nominal interest rate is 10% and the expected inflation rate is 5%.
