Summary 219b. Over the next two years, labor costs are expected to be unchanged,
but dress prices are expected to increase to $50. What effect will this
have on the firm’s optimal output? Explain. Suppose instead that
inflation is expected to increase the firm’s labor cost and output price
by identical (percentage) amounts. What effect would this have on
the firm’s output?
c. Finally, suppose once again that MCL$20 and P $50 but that
labor productivity (i.e., output per labor hour) is expected to increase
by 25 percent over the next five years. What effect would this have on
the firm’s optimal output? Explain.- A 200-pound steer can be sustained on a diet calling for various
proportions of grass and grain. These combinations are shown in the table.
Pounds of Grass Pounds of Grain
50 80
56 70
60 65
68 60
80 54
88 52a. Plot the isoquant corresponding to the inputs necessary to sustain a
200-pound steer. Comment on its shape.
b. The rancher’s cost of grass is $.10 per pound; the cost of grain is $.07
per pound. He prefers a feed mix of 68 pounds of grass and 60
pounds of grain. Is this a least-cost mix? If not, what is? Explain.
c. The rancher believes there are constant returns to scale in fattening
cattle. At current feed prices, what input quantities should he choose
if he wants to raise the steer’s weight to 250 pounds?- A trendy French restaurant is one of the first businesses to open in a
small corner of a commercial building still under construction. The
restaurant has received rave reviews and has lines of diners waiting for
tables most nights.
a. In the short run (next few months), what measures should the
restaurant take to maximize its profit? Explain.
b. In the long run (next six months and beyond), how can it maximize
its profit? (Assume that the impressive state of demand is permanent.) - Steel can be produced using three different methods: (1) a basic process
using coke that produces steel ingots, (2) continuous casting, or (3) an
electric furnace using steel scrap. The following table lists the average
cost per ton of steel for each method.
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