HomeworkLib
Question

A software firm uses programmers (labor) and computers (capital) to produce apps for mobile devices. The...

A software firm uses programmers (labor) and computers (capital) to produce apps for mobile devices. The firm estimates that the MP of labor is 5 apps per month and the price of labor is $1000 per month, while the MP of capital is 9 apps per month and its price is $1000. To maximize its profits, what is the rule that the firm uses to determine how much labor and capital to use?

business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Marginal product of labor is 5 apps

price of labor is $1000

Marginal product of capital is 9 apps.

Price of capital is $1000

At profit maximization point following condition must holds:

(MP of labor / Price of labor) = (MP of capital / Price of capital)

Firm should use that combination of labor and capital which satisfies the above stated condition.

----------

(MP of labor / Price of labor) = (5 /1000) = 0.005

(MP of capital / Price of capital) = (9 / 1000) = 0.009

(MP of capital / Price of capital) is greater than (MP of labor / Price of labor). It implies firm should increase the use of capital and decrease the use of labor till the ratio of marginal product to price of each input equals to each other,

0 0
Add a comment
Know the answer?
Add Answer to:
A software firm uses programmers (labor) and computers (capital) to produce apps for mobile devices. The...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Assume that a purely competitive firm uses two resources, labor (L)and capital (C), to produce a...

    Assume that a purely competitive firm uses two resources, labor (L)and capital (C), to produce a product. The market price of this product is $1.00. The Marginal Product (MP) and prices of the resources (Pl) and (Pc)are shown in the following four situations below: ----------------------------------------------------------------------------------------      MPl      MPc       Pl     Pc             MRPl              MRPc I    30        20          30    40              ______            ______ II    20        20          10    10              ______            ______   III   10        15           10   15              ______            ______   IV   30        40           10    5               ______            ______ ------------------------------------------------------------------------------------------ a. Calculate the marginal revenue product...

  • Consider a firm that uses labor (L) and capital (K) to produce a general output (q)...

    Consider a firm that uses labor (L) and capital (K) to produce a general output (q) using the following production function: q = K0.8 L0.2 The firm seeks to produce q = 50 units for sale and faces prices for labor of w = 3 and capital of r = 5. a) What is the marginal rate of technical substitution? b) What are the optimal amounts of each input used by the firm? c) How much does the firm spend?

  • Suppose that a firm uses capital (K) and labor (L) to produce widgets, and that the...

    Suppose that a firm uses capital (K) and labor (L) to produce widgets, and that the production function for widgets is given by Q = K 1/3L1/2 Assume that r = $4 and w = $4, where r is the price of capital and w is the wage rate. Finally, suppose that the price of widgets, p, is $8. a) Suppose that K = 64 in the short run. Given that w = 4, how many workers should this firm...

  • A perfectly competitive firm uses a single input (labor) to produce a good according to a...

    A perfectly competitive firm uses a single input (labor) to produce a good according to a production function Q(L) = 2/7 , where Lis the amount of labor it uses. The good sells for $180 per unit (price). The input costs $15 per unit (wage). 1. (20 pts) What is the profit-maximizing amount of input (L)? 2. (10 pts) What is the profit-maximizing amount of output (Q)? 3. (10 pts) How much profit does the firm make when it maximizes...

  • SM 3. A firm uses capital K, labour L, and land T to produce units of...

    SM 3. A firm uses capital K, labour L, and land T to produce units of a commodity, where Q=K2/3+ 1/2+/3 Suppose that the firm is paid a positive price p for each unit it produces, and that the positive prices it pays per unit of capital, labour, and land are r, w, and q, respectively. (a) Express the firm's profits as a function of (K,L,T). Then, find the values of K, L, and T, as functions of the four...

  • 9. A firm uses capital and labor to produce a single output good. The production function...

    9. A firm uses capital and labor to produce a single output good. The production function is given by F(K,L)=K^0.5L, where K is the amount of capital and L is the amount of labor employed by the firm. The unit prices of capital and labor are given by, respectively r=$5 and w=$6. Based on this information, characterize the optimal (output maximizing) allocation of inputs given that the firm decided to limit its total cost to $12,000. Illustrate your solution graphically:...

  • Exercise 2. A Los Angeles firm uses a single input (labor) to produce a recreational commodity...

    Exercise 2. A Los Angeles firm uses a single input (labor) to produce a recreational commodity according to a production function Q(L)4VL, where L is the amount of labor it uses. The commodity sells for $100 per unit. The input costs $50 per unit. Write down a function that states the firm's profit as a function of the amount of input. b. What is the profit-maximizing amount of input? What is the profit- maximizing amount of output? How much profit...

  • A firm uses 100 hours of labor and 20 units of capital to produce 5,000 bicycles...

    A firm uses 100 hours of labor and 20 units of capital to produce 5,000 bicycles a day. Labor’s marginal product is 4 bicycles per day and the marginal product of capital is 10 bicycles per day. Each unit of labor costs $20 and each unit of capital costs $40 per hour. If the firm wants to continue producing 5,000 bicycles per day at the lowest possible cost, it should A. Continue using 100 hours of labor and 20 units...

  • 4. Consider a firm that uses both labor and capital in production. The price of capital...

    4. Consider a firm that uses both labor and capital in production. The price of capital is $20 per unit and the wage rate is S10 per hour. a. Draw the firm's isocost line assuming a total production cost of $100. How steep is this line (that is, what is its slope)? Be sure to clearly label the axes. (3 points) b. Suppose the wage drops to $5 per unit. In which direction does the substitution effect change the firm's...

  • 4. Consider a firm that uses both labor and capital in production. The price of capital...

    4. Consider a firm that uses both labor and capital in production. The price of capital is $20 per unit and the wage rate is $10 per hour. Draw the firm's socost ine assuming a total production cost of $100. How steep is this line (that is, what is its slope)? Be sure to clearly label the axes. (3 points) b. Suppose the wage drops to S5 per unit. In which direction does the substitution effect change the firm's demand...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT