Task: A manufacturer is hiring 20 units of labor and 6 units of capital (bundleA). The price of labor is $10 and the price of capital is $2 and at A the marginal products of labor and capital are both equal to 20.
Question 1. Beginning at A if the manufacturer increases labor by 1 unit and decreases capital by 1 unit, what will happen to cost and output?
- Cost remain constant & output rises by 20 units
- Cost remain constant & output lowers by 20 units
- Output remains constant & cost increase by $8
- Output remains constant & cost lowers by $8
- Both cost and output remain constant
Question 2. Beginning at A, if the manufacturer raises expenses on labor by $1 and lowers expenses on capital by $1, which is True?
- Output per $ spent will rise
- Output per $ spent will lower
- MP of labor will eventually rise and MP of capital will eventually fall
- MP of labor will eventually rise and MP of capital will remain constant
- Or none of these
Question 3. The manufacturer
- is using optimal combination of capital and labor
- should use more labor and less capital
- should use more capital and less labor
- need more information to determine
Question 4. In equilibrium
- MPL will be less than 20
- MPK will be more than 20
- MPK=MPL
- MPL will be 5 times MPK
- Or the first 2 listed above