Purchase Solution

Calculating optimal amount of capital and labor

Not what you're looking for?

Ask Custom Question

Suppose long run production for the firm is indicated by: Q=f(k,e) where: MPe=k-150 MPk=E-60
In addition, assume the firm's isocost equation is given by: C=wE+rK Where C=$240,000 r=$600 w=$800
1) Calculate the firm's optimal amount of capital and labor.
2) Suppose wages fall to w=$500. Calculate the firm's optimal amount of capital and labor in this case.

Purchase this Solution

Solution Summary

Solution describes the methodology to find out a firm's optimal amount of capital and labor.

Solution Preview

1) Calculate the firm's optimal amount of capital and labor.
For optimal combination

MPe/w=MPk/r
(K-150)/800=(E-60)/600
600*(K-150)=(E-60)*800
600K-90000=800E-48000
600K=-48000+90000+800E
600K=42000+800E ...

Solution provided by:
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution


Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.