2. A company is producing toasters. Its production function is given by q = f(L,K) =...

 

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2. A company is producing toasters. Its production function is given by q = f(L,K) = KL². The company wants to produce 1,000 toasters per hour and the price of capital is $10 per hour. dq dq MP₁ = L = 2KL and MPx = dk = L² a) The company is considering building a factory in Country A where the price of labor is $5 per hour. What combination of labor and capital minimizes the company's cost in Country A? b) The company is also considering building a factory in Country B where the price of labor is $25 per hour. What combination of labor and capital minimizes the company's cost in Country B? c) Comment on whether you expect firms to use capital or labor intensive production methods in low wage countries? What about in high wage countries? 2. A company is producing toasters. Its production function is given by q = f(L,K) = KL². The company wants to produce 1,000 toasters per hour and the price of capital is $10 per hour. dq dq MP₁ = L = 2KL and MPx = dk = L² a) The company is considering building a factory in Country A where the price of labor is $5 per hour. What combination of labor and capital minimizes the company's cost in Country A? b) The company is also considering building a factory in Country B where the price of labor is $25 per hour. What combination of labor and capital minimizes the company's cost in Country B? c) Comment on whether you expect firms to use capital or labor intensive production methods in low wage countries? What about in high wage countries?

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To minimize the companys cost in Country A we need to find the combination of labor and capital that produces 1000 toasters per hour while minimizing ... View the full answer