9781118041581

Summary 225

output. Constant returns occur for a doubling of scale starting from

40 workers and a 10,000-square-foot plant or 30 workers and a

20,000-square-foot plant.

4. Given diminishing returns, using additional labor and less capital will
   lower the marginal product of labor and raise the marginal product of
   capital. Using extra labor also might bid up the price of labor. These
   effects move MPL/PLand MPK/PKinto equality.


5. If fiber’s profit is $.375 per square foot, fiber’s marginal profit becomes
   MF 30 1.5MF. Equating this to MGimplies MFMG4.
   Together with MFMG20, the solution is MF8 thousand barrels
   and MG12 thousand barrels. Given the reduced profit from fiber, the
   allocation of crude oil to this product is lowered (from 12 thousand to
   8 thousand barrels).

c05Production.qxd 9/5/11 5:49 PM Page 225