7. What would happen if the firm suddenly got a huge increase in its sales, raising its output to 75,000 pins per day? In the short run, it would not have time to adjust the amount of physical capital it uses. Since this increase would go beyond what we observe in our data. we can't caleulate a reliable estimate of the impact on the firm's costs. But we can answer the following questions: - In this case, do you think the firm's marginal product of labor would be higher or lower than the result you calculated in #3 above? Why? Carefully explain. - In this case, do you think the firm's marginal production cost would be higher or lower than the result you calculated in #4 above? Why? Carefully explain. The owner of the firm is considering the purchase of more machines. Based on their knowledge of the firm's production process, they think that if they rented two more machines and laid off four workers, the firm could produce the same output it's now producing (that is, 48,000 pins per day). Let's assume that the owner's estimate is correct. 8. Starting at its initial input mix and output, what is the firm's marginal rate of technical substitution equal to? Explain. 9. Based on your answers to #3 and #8, calculate your best estimate of the firm's marginal product of capital. Show your work and explain. 10. Considering the wage paid by the firm, the rental rate it pays for machines, and its MRTS (from #8 ), do you think it makes sense for the firm to replace some workers with machines in the long run? Why or why not? Carefully explain, using the data to support your answer. (Hint; think about how the MRTS compares to w/r. What does this comparison tell you?) Ten years later we see that the firm has grown. It now has 12 "machines" and employs 15 workers, and its daily output is 90,000 pins. Assume that wages and the rental rate on capital have not changed. 11. Is this firm's production subject to increasing returns to scale, constant returns to scale, or decreasing returns to scale in the long run? How can you tell? Show your work and carefully explain. 12. Calculate the firm's new total production cost (TC) and average total production cost (ATC). Show your work. 7. What would happen if the firm suddenly got a huge increase in its sales, raising its output to 75,000 pins per day? In the short run, it would not have time to adjust the amount of physical capital it uses. Since this increase would go beyond what we observe in our data. we can't caleulate a reliable estimate of the impact on the firm's costs. But we can answer the following questions: - In this case, do you think the firm's marginal product of labor would be higher or lower than the result you calculated in #3 above? Why? Carefully explain. - In this case, do you think the firm's marginal production cost would be higher or lower than the result you calculated in #4 above? Why? Carefully explain. The owner of the firm is considering the purchase of more machines. Based on their knowledge of the firm's production process, they think that if they rented two more machines and laid off four workers, the firm could produce the same output it's now producing (that is, 48,000 pins per day). Let's assume that the owner's estimate is correct. 8. Starting at its initial input mix and output, what is the firm's marginal rate of technical substitution equal to? Explain. 9. Based on your answers to #3 and #8, calculate your best estimate of the firm's marginal product of capital. Show your work and explain. 10. Considering the wage paid by the firm, the rental rate it pays for machines, and its MRTS (from #8 ), do you think it makes sense for the firm to replace some workers with machines in the long run? Why or why not? Carefully explain, using the data to support your answer. (Hint; think about how the MRTS compares to w/r. What does this comparison tell you?) Ten years later we see that the firm has grown. It now has 12 "machines" and employs 15 workers, and its daily output is 90,000 pins. Assume that wages and the rental rate on capital have not changed. 11. Is this firm's production subject to increasing returns to scale, constant returns to scale, or decreasing returns to scale in the long run? How can you tell? Show your work and carefully explain. 12. Calculate the firm's new total production cost (TC) and average total production cost (ATC). Show your work