Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 7, Problem 5TY
To determine
Measures that could be taken by firm to increase profit.
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A manager hires labor and rents capital equipment in a very competitive market. Currently the wage rate is $12 per hour and capital is rented at $8 per hour. If the marginal product of labor is 60 units of output per hour and the marginal product of capital is 45 units of output per hour, is the firm using the cost-minimizing combination of labor and capital? If not, should the firm increase or decrease the amount of capital used in its production process?
Roland Umbrellas has a production function given by Q = L0.5K0.5. The wage (W) is $80 per day and the rental per unit of capital (R) is $5 per day. In the long run, how many units of capital will Roland want to buy for each unit of labor?
The graph shows the Cost curves for a profit maximizing firm in a competitive market. If the market price is $30 and the firm produces at the profit maximum quantity, what is the amount of the total fix cost
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- A furniture maker currently produces 100 tables per week and sells them for a profit. She is considering expanding her operation in order to make more tables. Should she expand?arrow_forwardThe following graph shows the marginal and average product curves for labor, the firm's only variable input. The monthly wage for labor is $2,800. Fixed cost is $160,000. When the firm uses 120 units of labor, what is its marginal cost at this output?arrow_forwardFrom the table attached below, which plant will the firm choose for producing 18 chocolates per day if each worker costs $15 per day and each machine costs $50arrow_forward
- A farm is currently able to produce 10000 bushels of peanuts per season on 10 acres. Assume it adds on more acre and now is able to increase its total production to 12000 bushels of peanuts in the growing season. Determine the marginal product of the additional acre of land for this farm.arrow_forwardSuppose that your friend operates a pizza restaurant in the building he owns. Similar buildings in the neighborhood rent for $4,000 per month. He is considering selling the building and renting space in the suburbs for $3,000 a month, but he decides not take the move. He reasons: “ I would like to have a restaurant in the suburbs, but I pay no rent for my restaurant now, I do not want to see my costs rise by $3,000 per month”. What do you think about his reasoning? Is his reasoning correct?arrow_forwardWhat is the marginal cost of producing an additional unit:arrow_forward
- IV. Will can produce a higher grade, Gw, on an upcoming economic exam by studying. His production function depends on the number of hours he studies marginal analysis problems, A, and the number of hours he studies supply and demand problems, R. Specifically, Gw = 2.5A0.36R 0.64. His roommate David's grade production function is G) = 2.5A0.25R0.75 a. What is Will's marginal productivity from studying supply and demand problems? What is David's? b. What is Will's marginal rate of technical substitution between studying the two types of problems? What is David's?arrow_forwardThe table below provides information about the cost of inputs and value of output for the production of a road bike. Note there are four different stages of production. Raw materials Rubber for one tire ($25) Aluminum for the frame ($75) Other component materials ($90) Manufacturing Tire maker sells tires for $40 each Frame maker sells bike frame and components for a total of $275 Instructions: Enter your answers as a whole number. a. What value is added by the supplier of the raw materials? $ b. What value is added by the tire maker? $ c. What value is added by the maker of the frame and components? $ d. What value is added by the bike mechanic? $ e. What value is added by the bike store? $| f. What is the total contribution of the bike to GDP? $ Construction Bike mechanic puts everything together and sells the bike for $375 Sale by the retailer Retailer sells the bike for $600arrow_forwardSuppose the marginal product of the last worker employed by a firm is 40 units of output per day and the daily wage the firm must pay is K20, while the marginal product of the last machine rented by the firm is 120 units of output per day and the daily rental price of the machine is K30. Is the firm maximizing output in the long run? If not what should be done? b) Mr. Phiri has estimated that he can sell 1000 additional hamburgers per day by renting more automated equipment at a cost of K100 per day. Alternatively, he could sell an extra 1200 hamburgers per day by keeping the restaurant open for two more hours at a cost of K50 per hour. Which of the two alternatives should Mr. Phiri purseu?arrow_forward
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