A bottling company uses two inputs to produce bottles of the soft drink Sludge: bottling machines (K) and workers (L). The isoquants have the usual smooth shape. The machine costs $ 1,000 per day to run and the workers earn $ 200 per day. At the cur-rent level of production, the marginal product of the machine is an additional 200 bottles per day, and the marginal product of labor is 50 more bottles per day. Is this firm producing at minimum cost? If it is minimizing cost, explain why. If it is not minimizing cost, explain how the firm should change the ratio of inputs it uses to lower its cost.
Answer to relevant QuestionsSuppose that the government subsidizes the cost of workers by paying for 25% of the wage (the rate offered by the U. S. government in the late 1970s under the New Jobs Tax Credit program). What effect will this subsidy have ...In what types of industry would you expect to see substantial learning by doing? Why? What types of firms would not normally maximize profit? Should a firm shut down if its weekly revenue is $ 1,000, its variable cost is $ 500, and its fixed cost is $ 800, of which $ 600 is avoidable if it shuts down? Why? 2.5. How does the market for corporate control encourage firms to maximize profits?
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