produce 800 units of output. Answer the following questions: n the accompanying
ID: 1173405 • Letter: P
Question
produce 800 units of output. Answer the following questions: n the accompanying figure, capital costs $225 per unit. The manager wants to 600 500 400 ? 300 200 100 Q=800 0 900 Labor (L) (3 points) The price of labor is S per unit. The total cost of producing 800 units . with input combination A is S (decreases, increases) labor (2 points) By moving from A to B, the manager (decreases, increases) capital usage. usage and (4 points) The optimal input combination is is$ units of labor and units of capital. The minimum total cost for which 800 units can be producedExplanation / Answer
The curve ABC is isoquant curve in which the output is 800 units.
The straight parallel lines are isocost curve.
The isocost curve having coordinates (0,300) and (900,0).
Cost of this curve = $225*300 = $ 67500
Therefore, cost = $ x *900
$67500 = $x * 900
Cost of labor = $ 75 per unit.
1. The price of labor is $ 75 per unit. The total cost of producing 800 units with input combination A is $ 1,35,000 (= $ 225*600).
2. By moving from A to B, the manager increases labor usage and decreases capital usage.
3. The optimal input combination is 600 units of labor and 100 units of capital. The minimum total cost for which 800 units be produced is $ 67500.
The optimal input lies on isocost curve that is with coordinates (0,300) & (900,0).
The optimal input lies at point C. The combination is 100 units of capital.
Total cost = Cost of labor *No. Of labor+cost of capital*no.of capital
$67500 = $75*x + $225*100
$75x = $67500 - $22500 = $ 45000
x = 600
Number of labor = 600 units.
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