Chapters 7 Review Assume that a firm operates in the short-run with fixed level
ID: 1105988 • Letter: C
Question
Chapters 7 Review Assume that a firm operates in the short-run with fixed level of capital R = 5 and production function Q(K, L) = KL with production target Q -100. How much labor should the firm use in the short run? x(L=25 (b) L = 20 (d) L-500 9. A firm. is trying to produce Qo = 100 units of output and f ces a production function of Q(LK) = LK. Currently, the firm 10 and MPk 20, and faces a price of labor w1 per unit and price of capital is producing 100 units of output, has MP r=3per unit. abor. (e) Use more capital and more (b) Use less capital and less labor. (c) Use more capital and less labor. (d) Use less capital and more labor. (e) The firm is currently minimizing cost. ip 10. A firm that has a production function with diminishing MRTSL.K is currently producing output at the cost mnmzingcombination of labor and cap Ithe ct ofgpital decresces then the ne cost minimizing combination of labor and capital will have: (a) more capital and less labor. more capital and more labor. (c) less capital and less labor. gu less capital and more labor. 25 n-, A' with a production target of Q-8. The cost of labor is u-l per unit rExplanation / Answer
The selection for how much units of capital and Labour should the company employs, depends upon the marginal product of that factor divided by its price. An optimal rule indicates that the marginal product of the factor divided by its price should be equal a cross on factors
In this case the ratio of marginal product of labour to its price which is the wage rate, is equal to 10/1 = 10 find the same for the capital is 20 / 3. We can see that the ratio of marginal product of labour to its price is more than ratio of the marginal product of capital to its price.
This indicates that labour is more productive for the firm so it should use more labour and less capital
Correct option is option d.