According to The Wall Street Journal, Mitsubishi Motors recently announced a maj

Question

According to The Wall Street Journal, Mitsubishi Motors recently announced a major restructuring plan in an attempt to reverse declining global sales. Suppose that as part of the restructuring plan Mitsubishi conducts an analysis of how labor and capital are used in its production process. Prior to restructuring Mitsubishi's marginal rate of technical substitution is 0.17 (in absolute value). To hire workers, suppose that Mitsubishi must pay the competitive hourly wage of ¥1,470. In the study of its production process and markets where capital is procured, suppose that Mitsubishi determines that its marginal productivity of capital is 0.65 small cars per hour at its new targeted level of output and that capital is procured in a highly competitive market. The same study indicates that the average selling price of Mitsubishi's smallest car is ¥1,200,000. Determine the rate at which Mitsubishi can rent capital and the marginal productivity of labor at its new targeted level of output Instruction: Enter your response for marginal productivity of labor rounded to four decimal places Rental rate of capital: ¥ Marginal productivity of labor: To minimize costs Mitsubishi should hire capital and labor until the marginal rate of technical substitution reaches what proportion? Instruction: Enter your response rounded to four decimal places.

Explanation / Answer

(1)

MRTS = Wage rate / Rental rate

0.17 = 1,470 / Rental rate

Rental rate = 1,470 / 0.17 = 8,647

(2)

Profit is maximized when (Output price x Marginal productivity of labor (MPL)) = Wage rate

1,200,000 x MPL = 1,470

MPL = 0.0012

(3)

Target MRTS = Marginal productivity of capital / Marginal productivity of labor

= 0.65 / 0.0012

= 541.6667

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.