Question

Suppose that as part of the UNCCCC Paris Agreement Green New Deal Plan to rapidly reduce Greenhouse Gas Emissions (GHGs) and other local air pollutants, suppose the elected City Council of the City of K'jipuktuk (Halifax) puts into place a low GHG transport system. As part of the plan, K'jipuktuk Transit, has been electrifying and increasing the size of the city's Public Transit System. So, far to this end, suppose they have ordered 135 new electric buses (e-buses) from the Nova Scotia Electric Bus Company (NSEBC) to be used in the Greater K'jipuktuk-Halifax Area. LetQ represent the quantity of these electric buses. NSEBC receives the order and needs to decide how many human hours of labour (L) in hours/month) and robots (K) [in hours/month) to allocate to make the quantity (Q) e-buses over a one-month period. In addition to L and K, other exogenous factor inputs include, natural capital, human capital, technological factor progress (TFP) level, and manufactured inputs including, electricity, steel, glass, fabrics, etc. These are all assumed to be exogenously captured in the factor labeled "A" in the production function below. Let Q represent the quantity of e-buses made per month according to the following production function. Q(K,L) = A.L2/5.K3/5 [1] The marginal product of labour and capital are respectively: MP. (K,L) = A (15 and MPx (K,L) =ACO? a) Give one example of each of the following that is relevant to the above context. i) human capital, ii) natural capital, iii) physical capital b) Even if the firm owns the robots already and the workers are on salary contracts, explain why there is still an opportunity cost to allocate robots and workers to the production of the K'jipuktuk bus order. c) Find the equation of the isoquant for the production of Q = 135 new e-buses. Rearrange to get K as a function of L.

Answer 1

Human Capital: Human capital is the capital generated from human labor with higher skill like education, partic- ular skill, on job training, health, and other moral values. In this case one example of human capital is the technol- ogist having the knowledge to operate the robots efficiently. Natural Capital: This is the part of input that is directly from nature and required to produce input such that air, minerals, water, etc. In this case the relevant natural capital is water. Physical Capital: This is the capital needed for direct production of goods and services. Like robots, machinery, buildings, factories, etc. In this case one physical capital is the factory where they assemble and produce the bus. The opportunity cost of a input is foregoing the next best alternative use of the resource. The capital and labor used in produc- tion of e-Buses could have been used in other production. The opportunity cost of these inputs is the value the company foregoes by producing e-buses than producing other products like e-cars. The production function is given as Q = ALK For Q=135, the function becomes 135 = ALŠKÉ or,135 – LÉK or (35)*=