You manage a two-product firm. The production technology requires a mixture of capital and labor to...

 

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You manage a two-product firm. The production technology requires a mixture of capital and labor to produce each product. Capital is shared, while labor is specific to each of the two products. For the first product, capital (K > 0) and labor (L20) must satisfy the following, in order to produce units: 9 KL. Likewise, producing 92 units of the second product requires capital (K) and labor (now L > 0) such that: 92 KL2. In addition, total capital is limited to a maximum of 200 units. (So K 200.) Naturally, K, L, L are all required to be non-negative. Capital costs 100 per unit, labor for the first product costs 140 per unit and labor for the second product costs 175 per unit. The first product sells for 275 per unit, and the second sells for 300 per unit. 1. Initially suppose only the first product is present. Determine and interpret your optimal production plan. 2. Next suppose only the second product is present. Determine and interpret your optimal production plan. 3. Now assume both products are present. Determine and interpret your optimal production plan. 4. Repeat the three parts above assuming the first product sells for 200 per unit. 5. Fill in the following table: 91 92 MC of q with q2 fixed. MC of q2 with q fixed. 50 50 50 100 50 150 100 50 100 100 100 150 150 100 150 150 (MC is the marginal cost) 6. Write a short paragraph interpreting your findings. You manage a two-product firm. The production technology requires a mixture of capital and labor to produce each product. Capital is shared, while labor is specific to each of the two products. For the first product, capital (K > 0) and labor (L20) must satisfy the following, in order to produce units: 9 KL. Likewise, producing 92 units of the second product requires capital (K) and labor (now L > 0) such that: 92 KL2. In addition, total capital is limited to a maximum of 200 units. (So K 200.) Naturally, K, L, L are all required to be non-negative. Capital costs 100 per unit, labor for the first product costs 140 per unit and labor for the second product costs 175 per unit. The first product sells for 275 per unit, and the second sells for 300 per unit. 1. Initially suppose only the first product is present. Determine and interpret your optimal production plan. 2. Next suppose only the second product is present. Determine and interpret your optimal production plan. 3. Now assume both products are present. Determine and interpret your optimal production plan. 4. Repeat the three parts above assuming the first product sells for 200 per unit. 5. Fill in the following table: 91 92 MC of q with q2 fixed. MC of q2 with q fixed. 50 50 50 100 50 150 100 50 100 100 100 150 150 100 150 150 (MC is the marginal cost) 6. Write a short paragraph interpreting your findings.

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Ans first we will know about the meaning of optimal capital structure Explanation A Firms optimal capital structure is the ideal ratio of debt to equi... View the full answer