What is the firms optimal capital-labor ratio

Assignment Help Business Economics

Reference no: EM13885975

Suppose a firm’s production function is: f(E,K) = 40K0.25E0.75 The corresponding marginal product functions are: MPK = 10K-0.75E0.75 and MPE = 30K0.25E-0.25 Suppose initially that the hourly wage is $9 and the price of each unit of capital is $15.

a. If the firm is maximizing profits, what is the firm’s optimal capital-labor ratio?

b. If the firm has hired 25 machines and 50 workers, is it maximizing profits? Why or why not?

c. If the price of labor increases to $15 and the firm increases its capital stock to 12 units from 10 units, how many workers will the firm choose to hire? Does the scale or substitution effect dominate in this case?

Reference no: EM13885975

Questions Cloud

Consider two firms-assuming entire market will be served : Consider two firms, located at each end of a street of length 1. There are customers uniformly distributed along this street. Customers incur transportation costs TC = 2x2, where x is the distance they need to travel in order to purchase the product...

What are the negative affects of habitat fragmentation : What are the negative affects of habitat fragmentation?

What is the market-clearing wage with open borders : Assume that labor demand for low-skilled workers in the United States is: w = 24 – 0.1E where E is the number of workers (in millions) and w is the hourly wage. Assume there are currently 120 million domestic U.S. low-skilled workers who supply labor..

What is the equilibrium wage and the employment level : In a particular industry, labor supply is Es = 10 + w and labor demand is Ed = 40 – 4w, where E is the level of employment and w is the hourly wage. What is the equilibrium wage and the employment level if the labor market is competitive? What is the..

What is the firms optimal capital-labor ratio : Suppose a firm’s production function is: f(E,K) = 40K0.25E0.75 The corresponding marginal product functions are: MPK = 10K-0.75E0.75 and MPE = 30K0.25E-0.25 Suppose initially that the hourly wage is $9 and the price of each unit of capital is $15. If..

Local healthcare committee in metropolitan area : You are assigned to work on a local healthcare committee in a metropolitan area. There is a plan to bring a new healthcare delivery system to the area. You are tasked with deciding which of the four different organized healthcare delivery system mode..

Controls or substantive tests of transactions in the payroll : 1.Identify three tests of controls or substantive tests of transactions in the payroll and personnel cycle that an auditor may perform using audit software.

Consumer elastities of the consumer products : Compare the income elasticities of the following consumer elastities of the following consumer products

Prove each of the following identities : Prove each of the following identities.

User Account

All Pages