Question
A textile company has the production function Q = min{0.25 K , 0.5 L }, where K is units of capital and L is hours
A textile company has the production function Q = min{0.25K, 0.5L}, where K is units of capital and L is hours of labor.
a. Without any warning, the price of capital doubles. What should this textile company do in response?
b. If this textile company were planning a new plant, would there be any advantages to a larger facility?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Response to Increased Capital Price a The textile company should analyze its situation and consider the following potential responses to the doubled capital price Substitute labor for capital Since th...
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Step: 2
Step: 3
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Microeconomics
Authors: Douglas Bernheim, Michael Whinston
2nd edition
73375853, 978-0073375854
