Answered step by step
Verified Expert Solution
Question
1 Approved Answer
A bottling company uses two inputs to produce bottles of the soft drink Sludge: bottling machines (K) and workers (L). The isoquants have the usual
A bottling company uses two inputs to produce bottles of the soft drink Sludge: bottling machines (K) and workers (L). The isoquants have the usual smooth shape. The machines cost $1,000 per day to run (r), and the workers earn $200 per day (w). At the current level of production, the marginal product of machines (MPk) is an additional 466 bottles per day, and the marginal product of labor (MP_) is 23 more bottles per day. Is this firm producing at minimum cost? If it is minimizing cost, explain why. If it is not minimizing cost, explain how the firm should change the ratio of inputs it uses to lower its cost. The bottling company O A. is minimizing the cost of production because MPk/r = MP_/w. O B. is not minimizing the cost of production because MPk/r MP /w and should use less labor and more machines. O E. is not minimizing the cost of production because MPk/r > MP_/w and should use more labor and fewer machines
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started