Question

Word File Edit View insert Format Tools AutoSave @ S U O me Insert Draw Design Layout References Times New... 12 A A A A BIV b X , X A D A Table Window Help Assignments Mailings >> Share Comments A Styles Paragraph Dictate Sensitivity Assignment 5 1. The marginal product of capital for company ABC is $100 and its marginal product of labor is $20. How should the company substitute factors if the price of capital is $20 a unit and the price of labor is $10 a unit? 2. Ir the marginal product of capital of zoom company is $50 and its marginal product of labor is $30. Given that the price of labor per unit is $3, how much should the price of capital per unit be for the company to be at its optimum level?

Answer 1

As per HOMEWORKLIB RULES in case of multiple questions only the first question is to be answered

Kindly ask rest of the questions in a separate post

1.

At the optimal point of efficiency maximization,

MPL/MPK = PL/PK

Substitute given values,

MPL/MPK = 20/100 = 0.2

PL/PK = 10/20 = 0.5

Since here, MPL/MPK < PL/PK, it implies efficiency is not maximized at this point

Thus, in order to maximize efficiency, a reallocation of resources is required.

That is, the company must use more capital in place a labor i.e. the company must substitute labor for capital in order to maximize efficiency.

Hence, capital usage must be increased and labor usage must be decreased.