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- In choosing a production technology, how will firms react if one input becomes relatively more expensive?Suppose the cost of machines increases to 55, while the cost of labor stays at 40. How would that affect the total cost of the three methods? Which method should the film choose now?A firm is considering an investment that will earn a 6 rate of return. If it were to borrow the money, it would have of pay 8 interest on the loan, but it currently has the cash, so it will But need to borrow. Should the firm make line investment? Show your work.
- What is die difference between accounting and economic profit?A small company that shovels sidewalks and driveways has 100 homes signed up for its services this winter. It can use various combinations of capital and labor: intensive labor with hand shovels, less labor with snow blowers, and still less labor with a pickup truck that has a snowplow on front. To summarize, the method Choices are: Method 1: 50 units of labor, 10 units of capital Method 2: 20 units of labor, 40 units of capital Method 3: 10 units of labor, 70 units of capital If hiring labor for the winter costs $100/unit and a unit of capital costs 400, what is the best production method? What method should the company use if the cost of labor rises to $20/unit?How does fixed cost affect marginal cost? Why is this relationship important?
- What is the relationship between marginal product and marginal cost? (Hint: Look at the curves.) Why do you suppose that is? Is this relationship the same in the long run as in the short run?Based on your answers to the WipeOut Ski Company in Exercise 7.3, now imagine a situation where the firm produces a quantity of 5 units that it sells for a price of 25 each. What will be the companys profits or losses? How can you tell at a glance whether the company is making or losing money at this price by looking at average cost? At the given quantity and price, is the marginal unit produced adding to profits?What is a production technology?
- Do you think that the taxicab industry in large cities would be subject to significant economies of scale? Why or why not?Give the three reasons that explain why the division of labor increases an economys level of production.Would you consider an interest payment on a loan to a film an explicit or implicit cost?