Question: Suppose a chair manufacturer's can hire labour for €30 per hour and the rental cost of capital is…

30 Apr Question: Suppose a chair manufacturer’s can hire labour for €30 per hour and the rental cost of capital is…

Posted at 19:05h in 2Past Paper by Exams

Suppose a chair manufacturer’s can hire labour for €30 per hour and the rental cost of capital is є15 per hour. The chair manufacturer’s production function is such that a chair can be produced using 4 hours of labour or 4 hours of capital in any combination. (For example it can produce one chair with: 4 hours of labour only; 4 hours (rental) of capital only; or any combination of capital and labour that adds up to 4 hours) 3. Write down the equation for the cost function. What is the slope? Assume Capital (K) is on the Y axis and Labour (L) is on the X-axis. (a) (b) Draw the isoquant associated with producing one chair (q1) (c) If the firm is using 3 hours of labour and 1 hour of machine time to produce a chair, is it minimizing costs? If not how can it improve. Use diagrams in your answer, where possible.

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Question: Suppose a chair manufacturer’s can hire labour for €30 per hour and the rental cost of capital is…