1. The price of labor is $ ---------- 2. To produce 500 units efficiently, a man
ID: 1112093 • Letter: 1
Question
1. The price of labor is $ ----------
2. To produce 500 units efficiently, a manager would use ------- units of labor and ------- units of capital. The minimum cost of producing 500 units is -------
3. To produce 1,000 units efficiently, a manager would use ------- units of labor and ------- units of capital. The minimum cost of producing 1,000 units is $ -------
4. To produce 1,500 units efficiently, a manager would use ------ units of labor and ------- units of capital. The minimum cost of producing 1,500 units is --------
5. In the graph, construct the expansion path.
6. Along the expansion path constructed in question 5, the marginal rate of technical substitution is equal to ---------.
PROBLEM C. Answer questions 1-6 using the following graph C. In the following graph, the price of capital is $100 per unit. 50 32 820 Q3 = 1,500 units Q2 = 1,000 units Q1 500 units 0 140 200 32 Labor The price of labor is $ Page 2Explanation / Answer
1. The price of capital $100 and If only capital is bought when Q is 1500, total expense will be equal to budget ie. 50*100=$5000. And when full same budget is used on buying labor then 200 units of labor is bought so price of labor will be 5000/200=$25.
2. The budget when 500 units is produced is 20*100=2000. Budget constraint is 100*c+25*l=2000. Here units of labor is given is 32 units for the point where indifference curve is touching budget constraint. Now units of capital will be 100*c+ 25*32=2000. So c=12 units. To produce 500 units efficiently, a manager would use 32 units of labor and 12 units of capital. The minimum cost of producing 500 units is $2000
3. The budget when 1000 units is produced is 140*25=3500. Budget constraint is 100*c+25*l=2000. Here units of capital is given is 20 units for the point where indifference curve is touching budget constraint. Now units of labor will be 100*20+ 25*l=3500. So l=60 units. To produce 1000 units efficiently, a manager would use 60 units of labor and 20 units of capital. The minimum cost of producing 1000 units is $3500.
4. The budget when 1500 units is produced is 50*100=5000. Budget constraint is 100*c+25*l=2000. Here units of capital is given is 32 units for the point where indifference curve is touching budget constraint. Now units of labor will be 100*32+ 25*l=5000. So l=72 units. To produce 1500 units efficiently, a manager would use 72 units of labor and 32 units of capital. The minimum cost of producing 1500 units is $5000
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