Question

Problem 05-20 (algo) According to The Wall Street Journal, Mitsubishi Motors recently announced a major restructuring plan in an attempt to reverse declining global sales. Suppose that as part of the restructuring plan Mitsubishi conducts an analysis of how labor and capital are used in its production process. Prior to restructuring Mitsubishi's marginal rate of technical substitution is 0.15 (in absolute value). To hire workers, suppose that Mitsubishi must pay the competitive hourly wage of ¥1,670. In the study of its production process and markets where capital is procured, suppose that Mitsubishi determines that its marginal productivity of capital is 0.6 small cars per hour at its new targeted level of output and that capital is procured in a highly competitive market. The same study indicates that the average selling price of Mitsubishi's smallest car is ¥1,250,000. Determine the rate at which Mitsubishi can rent capital and the marginal productivity of labor at its new targeted level of output. Instruction: Enter your response for marginal productivity of labor rounded to four decimal places Rental rate of capital: Marginal productivity of labor: To minimize costs Mitsubishi should hire capital and labor until the marginal rate of technical substitution reaches what proportion? Instruction: Enter your response rounded to four decimal places.

Answer 1

Answeri- It is given that Marginal rate of technical s + illionمیل لن 0 . 5 wage = \ 1670 Marginal productivity of capital (MPK) = "60 Selling price of small cars= ¥12,50,000 Hental Rate of capital= price of care X MPK =1250,000 X 0.60 - ¥ 7,50,000 Wage = price of Car X Marginal productivity of Laboa (MPL) 1670 = 12,590,000 X MPL km ·0013 80, So, MPL = 1670 12.50,000 To minimise cost Mitsubishi should hire capital and labour where the marginal create of technical substitution = MPL - MPK 0.0013 0.6 = 0.0022