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The manager of a firm receives an engineering report claiming
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The manager of a firm receives an engineering report claiming that an additional hour of capital would add twice as much output as would an additional hour of labor (Think MRTS!). According to the firm's accountants, an hour of labour costs 4 times more than an hour of capital. (3 + 3 marks)

(i)

Is the firm on its expansion path? Explain why or why not?

(ii)

If the firm is under contractual obligations to keep its output at current levels, what long-run adjustment (if any) should the manager make in the firm's employment of labor and capital? Demonstrate using an isoquant-isocost diagram. Label the initial situation "A" and the post-adjustment situation "B."


a. Is the firm on its development way? Why or why not?

 

The firm is not on its extension way. The designing report demonstrates that the estimation of MPk is

 

twice that of MPl, so MRTSlk = MPl/MPk =...

 







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