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Checking for optimal combination of inputs

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The Largo Publishing House uses 400 printers and 200 printing presses to product books. A printer's wage rate is $20, and the price of a printing press is $5,000. The last printer added 20 books to total output, while the last press added 1,000 books to total output. Is the publishing house making optimal input choice? Why or why not? If not, how should the manager of Largo Publishing House adjust input usage?

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Solution Summary

The solution checks if Largo Publishing House is making optimal input choice.

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1) Is publishing house making the optional input choice? Why or why not?

Marginal Product of last printer=MP(printer)=20
Cost of printer=W(printer)=$20

Marginal Product of last printing press=MP(press)=1000
Cost of printer=W(press)=$5000

MP(printer)/W(printer)=20/20=1
MP(press)/W(press)=1000/5000=0.2

This shows that at the margin, the last dollar spent on printer produced 1 ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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