Question

Module 6 Assignment Worksheet Worksheet Instructions: 1. Complete this worksheet. 2. Once completed, navigate to Assignment 6 on Blackboard. This can be found under the Module 6 Assignments folder. 3. Refer to this worksheet when answering the questions online for Assignment 6. Worksheet Questions: Business is booming at the local McDonald's restaurant. It is contemplating adding a new grill and french-fry machine, but the day supervisor suggests simply hiring more workers. How should the manager decide which alternative to pursue? a. Compare the cost of the new grill and french-fry machine to the cost of additional workers, which one is cheaper?) b. Compare the additional output of the new grill and french-fry machine to the additional output of more workers. (which one produces more?) C. Compare the additional output per dollar spent on the new grill and french-fry machine to the additional output per dollar spent on additional workers d. None of the above 2. Suppose a firm finds that the marginal product of capital is 60 and the marginal product of labor is 20. If the price of capital is $6 and the price of labor is $2.50. Should this firm adjust its mix of capital and labor? How? (e. more/less capital? more/less labor?) 3. A firm minimizes its costs by using inputs such that the marginal product of labor is 10 and the marginal product of capital is 20. The price of capital is $10 per unit. What must the price of labor be? HEBÊ a wema @

Only need 1-3, 7a, 7b, 7d, 9c, 9d, 9e, 9f

Answer 1

1. From the given information, it is clear that the manager should compare the marginal output per dollar spent on one good and marginal output per dollar spent on other good to make decision that which alternative should use. Thus, the option C is correct. Marginal product of capital is 60 and the marginal product of labor is 20. Price of capital is $6 and the price of labor is $2.50. In order to take decision that how to use two alternatives, the firm should use the following formula: MPL/PL = MPK/PK 20/2.50 = 60/6 8 = 10 Thus, per unit marginal product of capital is greater than the per unit marginal product of labor. By spending each dollar on capital, the firm is getting 10 units of output and by spending each dollar on labor, the firm is getting 8 units of output.

Thus, the firm uses more capital and less labor. Marginal product of labor is 10 and marginal product of capital is 20 and the price of capital is $10 per unit. A firm minimizes its cost when MP/PL = MPK/PK 10/PL = 20/$10 PL = $5 Thus, the price of labor must be $5.