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capital and marginal productivity of labor

A major car company (from Japan), announced a major restructuring plan. to attempt to reverse its 6 percent decline in sales. the company's North American sales were hard hit, where a 29 percent drop in sales. This because of bad loans and financing with banks. In Japan, sales dropped a 56 percent, due to recalls and attempts to cover up faulty products.

Prior to restructuring plans, marginal rate of technical substitution is 0.15 (abolute value). To hire workers, suppose must pay the rate of Y1,330 and determines that the marginal productivity of capital is 0.5 small cars per hour at his targeted level of outpuet and the capital is procured in a highly competitive market. A study done also shows the smallest car and the aveage of selling it is Y950,000.

Determine the rate of can rent capital and marginal productivity of labor at its new targeed level of output. To minimize the cost, the car company should hire capital and labor until the marginal rate of subsitution reaches what portion?

Can you show any type of formula's to show the outcome of this?

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Solution Summary

Assess capital and marginal productivity of labor.