Suppose there are two inputs in the production function, labor (L) and capital (K), which can be combined to produce Y units of output according to the following production function: Y = 30K + 10L The firm wants to produce 600 units of output. 1. Draw the isoquant that corresponds to that level of production (600 units) in a graph that has L on the horizontal axis and K on the vertical axis. 2. The shape of the isoquant tells us about the relationship between the two inputs in production. How substitutable are L and K in the production of Y ? In particular, how many units of L can be replaced by one unit of K without affecting the level of output? 3. Is this isoquant convex (bowed toward the origin)? 4. In class, we said that isoquants are convex under our “standard assumptions.” To see which standard assumption is violated in this case, hold K fixed at some level (for convenience, suppose K is fixed at zero). Graph Y as a function of L for L = 0, …, 5. 5. By looking at your graph, determine the marginal product of labor (MPL). That is, what is the change in Y (∆Y ) when L increases by 1 unit (∆L = 1)? 6. How does the marginal product of labor (MPL) change as L increases? How is this different from the “standard assumption” about the MPL we made in class? 7. Suppose the firm can choose whatever combination of capital (K) and labor (L) it wants to produce 600 units. Suppose the price of capital is $1,000 per machine per week. What combination of inputs (K and L) will the firm use if the weekly salary of each worker is $400?
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more