Map Sapling Learning macmilan learning Beat to a Pulp Paper Co. uses two inputs
ID: 1103806 • Letter: M
Question
Map Sapling Learning macmilan learning Beat to a Pulp Paper Co. uses two inputs in production, paper machines and labor. Using the information provided in the graph below, answer the following questions 1. If the wage rate and rental rate of capital are both $200 and total cost is $2000, what is the cost minimizing point? 2. If the wage rate is $200, rental rate of capital is $800, and total cost is $4000, what is the cost minimizing point? Q=7,500 3. If the wage rate and rental rate of capital are both $250 and total cost is $5000, what is the cost minimizing point? socost 3 socost Q=5,000 Isocost 1 10 20 Quantity of laborExplanation / Answer
Equation of Isocost line: C = wL + rK
(1)
w = r = $200, C = $2,000
2,000 = 200L + 200K
L + K = 10
Therefore, vertical intercept = 10 and horizontal intercept = 10, meaning relevant isocost is Isocost 1.
Cost is minimized at point of tangency between isoquant and Isocost 1, at point B.
(2)
w = $200, r = $800, C = $4,000
4,000 = 200L + 800K
L + 4K = 20
Therefore, vertical intercept = 20/4 = 5 and horizontal intercept = 20, meaning relevant isocost is Isocost 2.
Cost is minimized at point of tangency between isoquant and Isocost 2, at point C.
(3)
w = r = $250, C = $5,000
5,000 = 250L + 250K
L + K = 20
Therefore, vertical intercept = 20 and horizontal intercept = 20, meaning relevant isocost is Isocost 3.
Cost is minimized at point of tangency between isoquant and Isocost 3, at point A.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.