Question

(Business example of last dollar rule. Assume that we have normal convex isoquants). Suppose you are...

(Business example of last dollar rule. Assume that we have normal convex isoquants). Suppose you are running a business and face a low skill wage rate of $9 per hour and a high skill wage rate of $18 per hour. If the marginal product of low skill labor for your business is 50 units of output per hour, and the marginal product of capital is 75 units of output per hour, are you using the cost-minimizing combination of the two types of labor? Explain. If not, should you increase or decrease the amount of low skill labor that you use relative to the amount of high skill labor?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

We have a low skill wage rate of $9 per hour and a high skill wage rate of $18 per hour.

MP of low skill labor = 50 units of output per hour,

MP of capital = 75 units of output per hour

For cost-minimizing combination of the two types of labor, you must ensure that MPL/MPK = PL/PK

Here MPL/MPK = 50/75 = 2/3 and PL/PK = 9/18 = 1/2

Here MPL/MPK > PL/PK

This indicates that the additional product per dollar of the low skilled worker is greater than the additional product per dollar of the high skilled worker. Therefore you should increase the use of low skilled worker and decrease the use of high skilled worker

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You operate a car detailing business with a fixed amount of machinery (capital), but you have...
You operate a car detailing business with a fixed amount of machinery (capital), but you have recently altered the number of workers that you employ per hour. Three employees can generate an average product of 6 cars per person in each hour, and four employees can generate an average product of 5 cars per person in each hour.  If the wage is $10 per hour, what is the marginal cost as you increase the labor from three to four employees? A....
1.Suppose you are running your own flower delivery business (called Here Comes the Bloom) and have...
1.Suppose you are running your own flower delivery business (called Here Comes the Bloom) and have the following financial information (per year): total revenues from sales are $260,000, labor costs are $85,000, rent is $20,000, materials are $33,000, vehicle related costs (fuel, insurance, maintenance) are $10,000 and utilities are $7,000. You own the delivery van and could rent it out for $6,000 per year if you weren’t using it to run your own business. You have a standing offer to...
Chapter 4 deals with incentives, and in this case we will look at PIECEWORK. This rewards...
Chapter 4 deals with incentives, and in this case we will look at PIECEWORK. This rewards employees based on their individual hourly production against an objective output standard and, of course, also something that may contribute to pay is the efficiency of the machinery. For example, if machinery is running slow or malfunctions, then people cannot produce work and, therefore, will earn less. So it’s a combination of the worker’s efforts and the machinery/capital. The payment standard: Hourly rate: $4.50...
1) Consider a firm that uses only capital and labor. In the short-run the firm: A....
1) Consider a firm that uses only capital and labor. In the short-run the firm: A. Will never face diminishing returns to labor B. Faces diminishing returns to labor because capital cannot be changed C. Faces increasing returns to labor because capital is variable D.Faces diminishing returns to capital because labor can be changed 2) Tim started a lawn mowing business during summer break using his family's lawn mower, which statement best explains the shape of the production function? A....
28) A business operated at 100% of capacity during its first month and incurred the following...
28) A business operated at 100% of capacity during its first month and incurred the following costs: Production costs (19,600 units): Direct materials $183,900 Direct labor 233,800 Variable factory overhead 254,500 Fixed factory overhead 90,700 $762,900 Operating expenses: Variable operating expenses $124,400 Fixed operating expenses 46,700 171,100 If 1,900 units remain unsold at the end of the month, the amount of inventory that would be reported on the variable costing balance sheet is a.$73,955 b.$65,151 c.$77,221 d.$90,541 27) Given the...
You are cost manager at Pristine Ltd which is the region’s largest manufacturer of commercial and...
You are cost manager at Pristine Ltd which is the region’s largest manufacturer of commercial and residential elegant cabinets and wood works. Due to the competitive market and technological advancements in almost every area of the business, the board of directors from the input of division’s head and other senior management, has decided to shift from traditional costing techniques to activity based costing in order to arrive at more accurate cost per unit especially for the cabinets which is the...
Orange County Chrome Company manufactures three chrome-plated products—automobile bumpers, valve covers, and wheels. These products are...
Orange County Chrome Company manufactures three chrome-plated products—automobile bumpers, valve covers, and wheels. These products are manufactured in two production departments (Stamping and Plating). The factory overhead for Orange County Chrome is $213,389. The three products consume both machine hours and direct labor hours in the two production departments as follows: Direct Labor Hours Machine Hours Stamping Department Automobile bumpers 558 803 Valve covers 295 557 Wheels 340 597 1,193 1,957 Plating Department Automobile bumpers 171 1,166 Valve covers 175...
Roles What do they know Sales Manager You want to sell 10,000 units in April, 15,000...
Roles What do they know Sales Manager You want to sell 10,000 units in April, 15,000 in May, 8,000 units in June at $20 each. Business Development You know that our competitor is struggling with manufacturing and supply is low, and your POV is that demand will increase by 10% in April and May Manufacturing Supervisor You have seen that raw material supply shipments are being delayed - and you want to keep 15% of next months production needs on...
Assessment Module 9 – Marginal Analysis Please create a tab in your Excel Workbook and name...
Assessment Module 9 – Marginal Analysis Please create a tab in your Excel Workbook and name it “Module 9 Marginal Analysis.” You have same basic templates in your Resources workbook, but you may need to modify these to fit the individual business problem. I am evaluating your professional ability to do so, and to create professional models and reports, so take your time, think through a logical, clear, well-structured, well-formatted model. Remember, assumption tables (like T-accounts) are your friends! Be...
Please read the article and answear about questions. Determining the Value of the Business After you...
Please read the article and answear about questions. Determining the Value of the Business After you have completed a thorough and exacting investigation, you need to analyze all the infor- mation you have gathered. This is the time to consult with your business, financial, and legal advis- ers to arrive at an estimate of the value of the business. Outside advisers are impartial and are more likely to see the bad things about the business than are you. You should...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT