Question

1A.What are the differences between a firm’s production in the short run and the long run?

B. If the marginal product of labor is 6 and the marginal rate of technical substitution between labor and capital is 1.5, what is the marginal product of capital?

C. Find an example of fixed proportion in production.

Answer 1

1) A ) In the short run production function maximum resources are fixed like capital , land etc . There is only one variable input , labor . In short run a producer cannot arrange for new capital and land , so they are fixed .

The long run time frame makes all the inputs variable . here the producer can alter combinations of every input to achieve minimization of cost .

B) MRTS = MP of labor / MP of capital

or, 1.5 = 6 / MP of capital

or, MP of capital = 6 / 1.5 = 4

C) Fixed proportion means the only way to produce a unit of output . Let us assume the making a glass of lemonade required 1 lemon and 2 tea spoon of sugar . So if I have 2 lemons and 2 tea spoon of sugar , I can only get 1 glass of lemonade . The other lemon sits idle . If I wish to make 2 glasses , I require 2 lemons and 4 tea spoon sugar .