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Short Run Production

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A producer is hiring 20 units of labor and 6 units of capital (bundle A) The price of labor is $10, the price of capital is $2, and at A, the marginal product of labor and capital are both equal to 20. Beginning at A, if the producer increases labor by one unit and decrease capital by i unit, then
a. cost remains constant and output increases by 20 units
b. cost remains constant and output decreases by 20 units
c. Output remains constant and cost increases by $8
d. Output remains constant and cost decreases by $8
e. Both cost and output remain constant.

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The solution discusses short run production.

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Increasing labor by one unit will increase costs by $10. Reducing ...

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