The Largo Publishing House uses 400 printers (workers) and 200 printing presses

Question

The Largo Publishing House uses 400 printers (workers) and 200 printing presses to produce books. A printer's wage rate is $20 per hour and the price per hour of a printing press is $5,000. The last printer hired added 20 books (per hour) to total output, while the last printing press added 1000 books (per hour) to total output. Is the publishing house making the optimal input choice? If not, how should the manager of Largo Publishing House adjust input usage? Answer A. No, the publisher is not making the optimal input choice. The publisher should use less of both inputs because the MP of each one is declining. B. No, the publisher is not making the optimal input choice. The publisher should use more of both inputs in order to benefit from economies of scale. C. No, the publisher is not making the optimal input choice. The publisher should use more printing press hours and fewer printer hours to produce at the same rate of output. D. Yes, the publisher is making the optimal input choice. E. No, the publisher is not making the optimal input choice. The publisher should use more labor hours and fewer printing press hours to produce at the same rate of output

Explanation / Answer

The last printer adds 20 books to the total output. So, the marginal productivity of the last printer is 20 books. The marginal productivity of the last printing press is 1000 books. The optimal choice of input is determined by the condition, Marginal productivity of printer Marginal productivity of printing press Wage rate of the printer Price of the printing press 20 /20 ‚ 1000 / 5000 1 ‚ 0.2

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