Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Chapter 16, Problem 16P
To determine
To explain:
The impact on the demand for capital, rental price and quantity of capital supplied if there is an increase in the marginal revenue product for the capital.
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A firm uses two inputs in production: capital and labor. In the short run, the firm cannot adjust the amount of capital it is using, but it can adjust the size of its workforce. What happens to the firm’s average total cost curve, the average variable cost curve, and the marginal cost curve when
the cost of renting capital increases?
the cost of hiring labor increases?
A profit maximizing firm produces output using capital, K, and labour, L, in the following production technology:
Y = 2*K^0.5*L^0.5
The rental rate of capital is r=0.10. What is the capital-labour ratio of the firm?
Imagine you own a business firm with a friend of yours. During the first quarter
you come up with the following information that:
• Output elasticity of Capital is 0.2
• Output elasticity of Labour is 0.8
• Rate of Technological advancement is 12
a) What kind of business firm is the one that you own? Mention 2 of its
characteristics.
b) Derive the marginal productivity of capital and labour, by means of Cobb-
Douglas production function.
c) If Y = F (K, L) where K= 1000 and L= 400, determine the values of MPx and
%3D
MPL.
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