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ECON 3240 Study Guide - Final Guide: Demand Curve, Government Cut, Marginal Cost

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School
York University
Department
Economics
Course
ECON 3240
Professor
David Lee

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Document Summary

Assume that an appliance manufacturer is employing variable factors x and y in such amounts that the mrps of the last units of x and y employed are and respectively. Factor x can be hired at per unit and factor y at per unit. Increase the employment of both inputs, x and y, since mrpx = 100, pof x = 50 and mrpy = 60 and pof y= 20. Mrps for both inputs > prices of both inputs. Assume that labour and capital are substitutes in production. The answer depends on the relative magnitudes of the substitution and output effects. With the substitution effect, an increase in the price of capital will increase labor employed. With the output effect, an increase in the price of capital will cause production cost to increase, output to decrease and less labor and capital to be employed.

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Related Questions

11. A firm is employing 100 units of labor and 50 units of capital to produce 200 widgets. Labor costs $10 per unit and capital $5 per unit. For the quantities of inputs employed. MPL = 7 and MPx = 5. In this situation, the firm B. is producing the maximum output possible given the prices and relative productivities of the inputs. could increase its output at no extra cost by using more capital and less labor. could lower its production costs by using more labor and less capital. should use more of both inputs in equal proportions.

25) Suppose that a firm is using 100 units of labour and 50 units of capital to produce 200 fax machines per day. The price of labour is $10 per unit and the price of capital is $5 per unit. The MP, equals 2 and the MPK equals 5. In this situation, A) the firm is minimizing its costs. B) the firm should increase the use of both inputs. C) the firm could lower its production costs by decreasing labour input and increasing capital input. D) the firm could lower its production costs by increasing labour input and decreasing capital input. E) the firm should decrease the use of both inputs.

Assume a firm is currently employing 20 units of capital and 100 units of labour in its production process. Assume also that the marginal product of the 20th unit of capital is 40 units of output, the marginal product of the 100th unit of labour is 10 units of output and the per-unit prices of capital and labour are $20 and $10, respectively. In this case, to minimize its costs of production the firm should:

  1. hire more capital and less labour.
  2. hire more labour and less capital.
  3. hire less capital and less labour.
  4. hire more capital and more labour.