Explore BrainMass
Share

Explore BrainMass

    Calculating optimal amount of capital and labor

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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.

    © BrainMass Inc. brainmass.com October 10, 2019, 12:05 am ad1c9bdddf
    https://brainmass.com/economics/production-function/calculating-optimal-amount-capital-labor-278228

    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 Summary

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

    $2.19