Question

13. Please explain how you decide what level of inputs you use to produce an output. Show this 14. Please explain how you decide what level of outputs you produce given a fixed level of an 15. Suppose your goal this year is to produce 6,400 bushels of organic com. Suppose your on a graph. (5 points) input. Show this on a graph. (5 points) production technology has the following relationship for producing bushels of corn Q f(L,T)- LT where Q is the number of bushels of corn you produce, L is the number of labor hours you utilize, and T is the number of tractor hours you utilize. You know that the cost per hour of labor is $20 and the cost per hour of tractor time is $500. Assume that you are a cost minimizing producer. (30 points) Theoretically, tell me how you would figure out what your minimum cost is for producing a quantity of 6,400 bushels of corn. a. How much money will you need to ask from your banker to achieve your goal? (Note: when given your particular production function, the optimal amount of input formulas are b. L- time.) and T , where pu is the cost of labor and pr is the cost of tractor , where pL1s the cost of labor and pr is the cost of tractor Pr and 7: c. Please sketch a graph of this solution. Include the isoquant and iso-cost line. d. Suppose after reviewing your business plan, your banker tells you she is only willing to give you $8,000. Theoretically, tell me how you would figure out what your maximunm production is when you have only $8,000 to work with and you are a cost minimizer e. What is the maximum amount you can produce? (Note: when given a particular expenditure E and you are trying to maximize output, the optimal amount of inpu formulas are L Ξ_and7:-, tractor time.) where pu is the cost of labor and pr is the cost of f. Please sketch this new answer on the graph from answer c. Please include the isoquant and the iso-cost line

Answer 1

Q 13

Answer: I will decide two combination of input, i.e. least cost combination of inputs for producing a given output and producing maximum output with a combination of inputs, say X & Y.

1 In least cost combination of inputs method i will employ the combination of inputs which gives me the least cost for producing certain level of given output.

2 And for producing maximum level of output which is giving me maximum profit i will choose the combination of inputs which is giving me this maximum level of output.

Above can be explained with below given graph.

In the above diagram, IC1, IC2, IC3 and IC4 are the iso-cost lines and IQ1, IQ2, IQ3 and IQ4 are the iso-quant curves and i will the choose the combination which is giving me the least cost combination for producing a given output or for maximising my output will choose the the combination of inputs of X & Y which are giving me the maximum level of output and as per diagram it is the tangible point E which is on IC3 and IQ3 which is giving me least cost combination as well as maximum level of output with given combination of inputs since rest of other points are not giving me least combination of inputs as well as not maximising my output with a given number of inputs.

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