What proportion used to minimize costs


The Wall Street Journal reported that Japan's No. 4 automaker - Mitsubishi Motors - announced a major restructuring plan in an attempt to reverse its 6 percent declining global sales. The company's sales were particularly hard hit in North America, where its sales fell 29 percent due to the combination of an unusually large number of bad loans and reduced demand resulting from tightening of its lax credit criteria. In Japan, sales have slipped 56 percent (excluding minivans) due, in large part, to automobile recalls and attempt to cover up faulty products. Suppose that as part of the restructuring plan Mitsubishi conducts an analysis of how labor and capital are used in its production process. Prior to restructuring Mitsubishi's marginal rate of technical substitution is 0.15 (in absolute value). To hire workers, suppose that Mitsubishi must pay the competitive hourly wage of Y1,330. In the study of its production process and markets where capital is procured, suppose that Mitsubishi determines that its marginal productivity of capital is 0.5 small cars per hour at it is new targeted level of output and that capital is procured in a highly competitive market. The same study indicates that the average selling price for Mitsubishi's smallest care is Y950,000. Determine the rate at which Mitsubishi can rent capital and the marginal productivity of labor at its new targeted level of output. To minimize costs Mitsubishi should hire capital and labor until the marginal rate of technical substitution reaches what proportion?

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Microeconomics: What proportion used to minimize costs
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