A firm producing key chains with a mini flashlight attached can fire labor and capital at the same rates (w = $15 and r= $15) in their production process. Show what the optimal (cost minimizing) ratio of capital to labor is labor capital is based on the tangency rule between isoquant and isocost curves. Determine what the optimal ratio will be if the rental rate of capital rises from $15 to $30.
A firm producing key chains with a mini flashlight attached can fire labor and capital at the same rates (w = $15 and r= $15) in their production process. Show what the optimal (cost minimizing) ratio of capital to labor is labor capital is based on the tangency rule between isoquant and isocost curves. Determine what the optimal ratio will be if the rental rate of capital rises from $15 to $30.
Chapter6: Proudction Costs
Section: Chapter Questions
Problem 3SQP
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