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Decision Making

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Please refer attached file for graphs.

With reference to the isocost curve and isoquant below, and the knowledge that labor costs $150 per unit, answer the following questions:

a. What is the price of capital?
b. What is the equation of the isocost curve?
c. What is the slope of the isocost curve?
d. If the marginal product of capital is 50 at the optimal combination of labor and capital (Point B), then what is the marginal product of labor and why? (Hint: Use mathematical conditions for optimal combination).
e.At Point A, which is greater, MPL/w or the MPK/r?
f. At Point C, the same output can be produced more cheaply by substituting _________ for __________.

2. You are the production manager of a price-taking firm. Market price is currently $25 and the chart below depicts your marginal revenue, marginal cost, average total cost and average variable cost curves.

a. Should you produce or shut down when price is $25? Why?
b. What is your profit maximizing output?
c. What is your total revenue at the optimal output?
d. What is your total fixed cost?
e. What is your total variable cost at the optimal output?
f. What is your total profit at the optimal output?
g. Demonstrate how the output associated with the maximum profit rate is not the profit maximizing output
h. Assume the market price falls to $10. Should you produce or shut down at $10? Why?
i. If you produce, how much should you produce?
j. If you produce, what is your total profit?

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Please refer attached file for graphs.

1. a. What is the price of capital?

Labor cost=w=$150
Capital cost=r=?
Optimal Point is B at which
Number of capital units=K=45
Number of labor units=L=30
Total Cost at B=45r+30w=45r+30*150=45r+4500
Total cost at labor axis intercept=60*150=$9000
We know total cost along isocost curve is same. So,
45r+4500=9000
45r=4500
r=100
So, Capital cost=r=$100 per unit

b. What is the equation of the isocost curve?

We have two points on isocost curve given by
(L1, K1)= (0,90)
(Ll2, K2)=(30,45)
Slope of isocost line=m=(K2-K1)/(L2-L1)=(45-90)/(30-0)=-45/30=-1.5
Equation of isocost line=K-K1=M*(L-L1)
i.e. K-90=-1.5*(L-0)
K-90=-1.5L
K+1.5L=90

c. What is the slope of the isocost curve?

As calculated in part b, slope of isocost curve is -1.5

d. If the marginal product of capital is 50 at the optimal combination of labor and capital (Point B), then what is the marginal product of labor and why? (Hint: Use mathematical conditions for optimal combination).

Given Marginal product of capital=MPK=50
Marginal product of labor=MPL=?
Labor cost=w=$150
Capital cost=r=$100
We know at optimal point ...

Solution Summary

There are two problems. Solution to first problem determines slope and equation of isocost curve. Solution to second problem demonstrates the methodology to find optimal output level in the given cases.

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Decision Making Process: Individual Vs Group

(Scenario) The CEO of your company has been extremely frustrated with what has been occurring within the organization lately. In a recent managers meeting he exclaimed,

"Everyone around this place just follows the status quo. No one ever has any unique ideas on how we can make this organization better. You just sit here and wait for me to give you directions on what to do. Then you follow those directions word-for-word without asking any questions or making any improvements. We need to change this attitude and change it quickly."

He then pointed out each of your group members stated, "I'm assigning you all to a working group. Your goal is to help me fix this problem. I want you to work together, do some research, and come up with concrete ideas and suggestions to fix this problem."

Your group must do analysis, have discussions (either via the small group chat or discussion board) and come to a consensus to prepare a report (paper) that addresses the following:

Part 1 - Define the term "group" after discussion with your fellow team members. Avoid repeating a dictionary definition. For this scenario what would constitute a "group"?

Part 2 - Are there any differences in how individuals and groups make decisions? If so what are they?

Part 3 - Identify the applicable decision concepts (theories, principles, paradoxes, etc.) from our learning all semester (not just the group decision concepts identified in Unit 5) that your group believes will best explain what is occurring within the organization. Be sure your group provides rational to support each of the concepts your group identifies.

Study Material The Psychology of Judgment and Decision making(Plous) Chapter 17-18 and earlier theories and thoughts concerning Decision Making concepts.

Part 4 - Identify at least three (3) recommendations (from your group to the CEO) that will help him improve or overcome the current decision making conditions within the organization.

thank you for your insight and professional thoughts.
very important group assignment. Best Regards

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