Suppose that widgets can be produced using two different
Question and Solution
Suppose that widgets can be produced using two different production techniques, A and B. The following table provides th
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Suppose that widgets can be produced using two different production techniques, A and B. The following table provides the total input requirements for each of five different total output levels. Q = 1 Q = 2 Q = 3 Q = 4 Q = 5 Tech. K L K L K L K L K L A 2 5 1 10 5 14 6 18 8 20 B 5 2 8 3 11 4 14 5 16 6 a. Assuming that the price of labor (PL) is $1 and the price of capital (PK) is $2, calculate the total cost of production for each of the five levels of output using the optimal (leastcost) technology at each level. b. How many labor hours (units of labor) would be employed at each level of output? How many machine hours (units of capital)c. Graph total cost of production as a function of output. (Put cost on the Y-axis and output, q, on the X-axis.) Again assume that the optimal technology is used. d. Repeat a. through c. under the assumption that the price of labor (PL) rises from $1 to $3 while the price of capital (PK) remains at $2.
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