b. If the firm wishes to produce 97 units of output, which input combination is

Question

b. If the firm wishes to produce 97 units of output, which input combination is economically efficient: 5L and 1K, 4L and 2K, 3L and 3K, or 2L and 4K? Explain your answer.

c. If input prices change to $20 per unit of labor (w = 20) and $40 per unit of capital (r = $40), what is the economically efficient input combination to produce 97 units? Explain.

d. Suppose the firm operates in the short run with 3 units of capital. Does the firm experience diminishing returns? Explain using the production data in the preceding table.

e. What is the marginal product of the fourth unit of labor when K = 1? K = 2? K = 3? K = 4? Explain the pattern in labor productivity.

Explanation / Answer

These are all guesses, especially d and e, but these are my cracks at them. a. 5L and 1K, it utilizes the least tech support. b. 2L and 4K, it's cheapest. c. 5L and 1K, it's cheapest. d. I don't think... Production doesn't decrease (or arch) with increased levels of of Labor. It's a consistent proportion. e. 1=K: =0 2=K: =10 3=K: =23 4=K: =87 The output increases significantly with increase in capital. Especially with the addition of the 4th capital unit.

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