Firm can use two different production technologies

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Reference no: EM131171523

A firm can use two different production technologies, with capital and labor requirements at each level of output as follows:

Technology 1 Technology 2

Output K L K L

11 6 1 2 7

12 7 3 3 10

13 9 5 4 14

14 12 7 5 20

(a) Suppose the firm is operating in a low-wage country, where capital cost is $4 per unit and labor cost is $2 per worker. For each level of output, which technology is the cheapest? Show your work.

(b) Now suppose the firm is operating in a high-wage country, where capital cost is $2 per unit and labor cost is only $4 per worker. For each level of output, which technology is the cheapest? Show your work.

(c) Suppose the firm moves from a high-wage to a low-wage country but that its level of output remains constant at 13 units. How will its total employment change? Explain.

Reference no: EM131171523

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