2 Long-run production (6 points) Another firm in the same industry, Cake, considers setting up a...
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2 Long-run production (6 points) Another firm in the same industry, Cake, considers setting up a plant in Canada and is thus evaluating its long-run production possibilities there. Besides using machinery K, it can hire labor L. The production function is q=f(K, L)=K0.5 10.5 (a) What is the equation of the isoquant, i.e. K as a function of labor (and output)? (2) 1 (b) What is the marginal rate of technical substitution? (2) (c) The manufacturer produces 12 units of its product. How many additional units of capital do you need to substitute for one marginal unit of labor when L = 6? How many do you need when you want to substitute for one marginal unit of labor when L=12? In which case do you need more additional capital?¹ (2) 2 Long-run production (6 points) Another firm in the same industry, Cake, considers setting up a plant in Canada and is thus evaluating its long-run production possibilities there. Besides using machinery K, it can hire labor L. The production function is q=f(K, L)=K0.5 10.5 (a) What is the equation of the isoquant, i.e. K as a function of labor (and output)? (2) 1 (b) What is the marginal rate of technical substitution? (2) (c) The manufacturer produces 12 units of its product. How many additional units of capital do you need to substitute for one marginal unit of labor when L = 6? How many do you need when you want to substitute for one marginal unit of labor when L=12? In which case do you need more additional capital?¹ (2)
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a The isoquant equation is K 105L b The marginal rate of tech... View the full answer
Related Book For
Social Statistics For A Diverse Society
ISBN: 9781483333540
7th Edition
Authors: Chava Frankfort Nachmias, Anna Leon Guerrero
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