Question

In: Economics

Determine if the following statements are true or false. A. Suppose for a particular production function...

Determine if the following statements are true or false.

A. Suppose for a particular production function that MPL = 36(K/L) and MPK = 36(L/K) The price of capital is $5 per unit and the price of labor is $125 per unit. At the cost-minimizing combination of capital and labor, the firm should employ five times as much capital as labor.

B. The lower is the elasticity of substitution between capital and labor, the more inelastic labor demand will be.

C. The short-run total cost of producing some level of output can never be lower than long-run total cost.

D. Suppose in a particular production process that capital and labor are perfect substitutes so that three units of labor can always be substituted for one unit of capital. If the price of capital is $4 per unit and the price of labor is $1 per unit, the firm should employ only capital to minimize the cost of producing its output level.

Solutions

Expert Solution

A. At cost minimising combination : MPL/MPK = w/r

Here MPL = 36(K/L)

And MPK = 36(L/K)

w= $125

r = $5

MPL/MPK =w/r

[36(K/L) / 36(L/K)] = 125/5

K2/ L2 =25

K/L =5

K = 5L

Hence, it implies that at cost minimising combination of capital and labor , the firm should employ five times as much times as much capital as labor. Hence, the given statement is TRUE.

(B) TRUE, the lower the elasticity of substitution between capital and labor , the more inelastic labor demand will be . Because firm is more willing to pay higher labor costs ,if it is not easy for the firms to substitute capital for labor.

(C) TRUE, the short run total costs of producing some level of output can never be lower than long run total cost because long run is the minimum possible cost for producing the given level of output among the short run costs.So, short run cpsts can never be lower than long run costs.

(D) FALSE , because capital and labor are perfect substitutes and three units of labor can always be substituted for one unit of capital. It implies MRTS= 1/3. And price of capital = $4 per unit and price of labor = $1 per unit. It implies w/r = 1/4 .

Because w/r < MRTS . It implies that the firm should employ only labor to minimize the cost of producing its output level.

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

True or False Determine if the following statements are true or false. _____ 1. A liquid...
True or False Determine if the following statements are true or false. _____ 1. A liquid takes the volume of its container. _____ 2. Particles of amorphous solids have no definite pattern. _____ 3. A beef steak is an example of a crystalline solid. _____ 4. Viscosity causes water to curve upward at the top rim of a glass. _____ 5. There is more gas than any other state of matter in the universe. _____ 6. All states of matter...
True or false: For each of the statements, determine whether it is true or false, then...
True or false: For each of the statements, determine whether it is true or false, then explain in a few sentences why that is the answer. Note: no marks will be given for answers that do not include an explanation. 1. If money stops being a reliable store of value, then it ceases to be useful as a medium of exchange. 2. The gold standard is an improvement over actual gold coinage because it allows the government/central bank to control...
Determine if the following statements are true/false If the statement is false, either correct it or...
Determine if the following statements are true/false If the statement is false, either correct it or briefly explain why it is false. ________ The correlation coefficient indicates the change in y associated with a unit change in x. ________To conduct a valid regression analysis, both x and y must be approximately normally distributed. ________ All data points will fit the regression line exactly if the sample correlation is either +1 or −1. _________ If r > 0, then as x...
Determine whether each of the following statements is true or false. If the statement is false,...
Determine whether each of the following statements is true or false. If the statement is false, modify and rewrite it so that it is a true statement. a. When a molecule has two, degenerate, “infrared active”, vibrational modes, the two vibrational modes will show absorptions at different frequencies in the infrared spectrum. b. For a given substance, strong intermolecular forces between molecules of the substance can cause peak broadening of some of the absorptions in the infrared spectrum of the...
True or False questions. Determine whether or not each of the following statements is true. If...
True or False questions. Determine whether or not each of the following statements is true. If a statement is true, prove it. If the statement is false, provide a counterexample and explain how it constitutes a counterexample. Diagrams can be useful in explaining such things. a) If the electric potential in a certain region of space is constant, then the charge enclosed by any closed surface completely contained within that region is zero. b) A sphere of radius R is...
True or False questions. Determine whether or not each of the following statements is true. If...
True or False questions. Determine whether or not each of the following statements is true. If a statement is true, prove it. If the statement is false, provide a counterexample and explain how it constitutes a counterexample. Diagrams can be useful in explaining such things. 1. A sphere of radius R is centered at the origin. A total charge Q is uniformly distributed throughout its interior. A ball of radius R/2 centered at the the origin is carved out and...
1. Determine if the following statements are true or false. If a statement is true, prove...
1. Determine if the following statements are true or false. If a statement is true, prove it in general, If a statement is false, provide a specific counterexample. Let V and W be finite-dimensional vector spaces over field F, and let φ: V → W be a linear transformation. A) If φ is injective, then dim(V) ≤ dim(W). B) If dim(V) ≤ dim(W), then φ is injective. C) If φ is surjective, then dim(V) ≥ dim(W). D) If dim(V) ≥...
Determine whether or not the following statements are true or false. A. If the income consumption...
Determine whether or not the following statements are true or false. A. If the income consumption curve is vertical, the Engel curve for good y is upward sloping. B. If the price consumption curve (as the price of good x changes) is vertical, the price elasticity of demand for good x is zero. C. An upward sloping price consumption curve (as the price of good x changes) indicates that goods x and y are complements in consumption. D. If preferences...
Determine which of the following statements are true and which are false and why? (a) There...
Determine which of the following statements are true and which are false and why? (a) There always exist a Pareto efficient alternative. b) There always exist a Pareto dominated alternative. (c) The best alternative according to Rawlsian Justice is always Pareto efficient. (d) The best alternative according to Borda rule is always Pareto efficient.
Determine whether or not the following statements are true or false. A. If the income consumption...
Determine whether or not the following statements are true or false. A. If the income consumption curve is vertical, the Engel curve for good y is upward sloping. B. If the price consumption curve (as the price of good x changes) is vertical, the price elasticity of demand for good x is zero. C. An upward sloping price consumption curve (as the price of good x changes) indicates that goods x and y are complements in consumption. D. If preferences...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT