1. Suppose a firm finds that the marginal product of capital is 60 and the marginal product of labor is 20. If the price of capital is $6 and the price of labor is $2.50, describe how the firm should adjust its mix of capital and labor? What will be the result?
2. Suppose there is a bill to increase the tax on cigarettes by $1 per pack coupled with an income tax cut of $500. Suppose a person smokes an average of 500 packs of cigarettes per yearand would thus face a tax increase of about $500 per year from the cigarette tax at the person's current level of consumption. The income tax measure would increase the person's after-tax income by $500.

Would the combined measures be likely to have any effect on the person's consumption of cigarettes? Why or why not?

Rittenberg, L., & Tregarthen, T. (2011). Principles of economics

CHAPTER 7: The analysis of consumer choice

CHAPTER 8: Production and Cost