Question
A firm can use three different production technologies, with capital and labor requirements at each level of output as follows: TECHNOLOGY 1 TECHNOLOGY 2 TECHNOLOGY
A firm can use three different production technologies, with capital and labor requirements at each level of output as follows:
| TECHNOLOGY 1 | TECHNOLOGY 2 | TECHNOLOGY 3 | |||
Daily |
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Output | K | L | K | L | K | L |
100 | 3 | 7 | 4 | 5 | 5 | 4 |
150 | 3 | 10 | 4 | 7 | 5 | 5 |
200 | 4 | 11 | 5 | 8 | 6 | 6 |
250 | 5 | 13 | 6 | 10 | 7 | 8 |
a. Suppose the firm is operating in a high-wage country, where capital cost is $100 per unit per day and labor cost is $80 per worker per day. For each level of output, which technology is the cheapest?
b. Now suppose the firm is operating in a low-wage country, where capital cost is $100 per unit per day but labor cost is only $40 per unit per day. For each level of output, which technology is the cheapest?
c. Suppose the firm moves from a high-wage to a low-wage country but its level of output remains constant at 200 units per day. How will its total employment change?
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