Question

2019 hearning activity Using 1. to the information provided in Table I below to answer the questions (1-4) Units of Variable Inputs Produce Techniques 1 unit of output 2 units of output 3 units of output 12 Table 1 1. Refer to Table 1. Assuming the price of labor (L) is $5 per unit and the price of capital (K) is $10 per unit, what production technique should this firm use to produce 2 units of output? 2. Refer to Table 1. Assuming the price of labor (L) is $5 per unit and the price of capital (K) is $10 per unit, please calculate the total variable cost of producing one unit of output? 3. Refer to Table 1. Assume that the relevant time period is the short run. Assuming the price of labor (L) is $5 per unit and the price of capital (K) is $10 per unit, What is this firm's total cost of producing one unit of output? 4. Refer to Table 1. Assuming the price of labor (L) is $5 per unit and the price of capital (K) is $10 per unit, could we determine the marginal cost of producing the third unit of output?

Answer 1

1. For 2 units of output, using technique A, 14 units of K and 12 units of L are required.

considering K as 10 per unit and L as 5 per unit as given in the question, total cost would be 14*10 + 12*5 = $200

For 2 units of output, using technique B, 8 units of K and 20 units of L are required.

considering K as 10 per unit and L as 5 per unit as given in the question, total cost would be 8*10 + 20*5 = $180

Hence, the firm should use the production technique B to produce 2 units of output.

2. For 1 unit of output, using technique A, 8 units of K and 8 units of L are required.

considering K as 10 per unit and L as 5 per unit as given in the question, total cost would be 8*10 + 8*5 = $120

For 1 unit of output, using technique B, 4 units of K and 12 units of L are required.

considering K as 10 per unit and L as 5 per unit as given in the question, total cost would be 4*10 + 12*5 = $100

Hence total variable cost is technique A + technique B = 120 + 100 = $220

3.As there is no fixed cost mentioned in the question, lets assume it to be zero. Hence the total cost will be the total variable cost + total fixed cost = $220 + 0 = $220

4. For 3 units of output, using technique A, 16 units of K and 12 units of L are required.

considering K as 10 per unit and L as 5 per unit as given in the question, total cost would be 16*10 + 12*5 = $220

For 3 units of output, using technique B, 12 units of K and 22 units of L are required.

considering K as 10 per unit and L as 5 per unit as given in the question, total cost would be 12*10 + 22*5 = $230

Marginal cost for technique A = 220 - 200 = $20 [cost of producing 3 units - cost of producing 2 units]

Marginal cost for technique B = 230 - 180 = $50 [cost of producing 3 units - cost of producing 2 units]