dolution

 

1. The following table shows the marginal product of capital and labour for each of several methods of producing 1000 kilograms of flour per day.

                               

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Production

a. As we move from A to G, are the production methods becoming more or less capital intensive? Explain.

 

b. If capital costs $8 per unit and labour costs $4 per unit, which production method minimizes the cost of producing 1000 kg of flour?

 

c. For each of the methods that are not cost minimizing (with the factor prices from part (b)), describe how the firm would have to adjust its use of capital and labour to minimize costs.

 

d. Now suppose the price of capital falls to $4 per unit and the price of labour rises to $6 per unit. Which method  now minimizes costs?

 

 
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