Question 5:Suppose a brewery uses a Cobb-Douglas productionfunction for his production. He studies the productionprocess and finds the following. An additionalmachine-hour of fermentation capacity wouldincrease output by 500 bottles per day(i.e. MPK = 500). An additional man-hour of laborwould increase output by 1000 bottles per day(i.e. MPL = 1000). The price of a man-hour oflabor is $50 per hour. The price of a machine-hour offermentation capacity is $5 per hour.2. It turns out, the brewery is not optimally chossingthe factors of production. To lower its productioncost, which factor of production should thebrewery increase and which factor should hedecrease?

The Marginal Rate of Technical substitution is the rate ag which the producer is willing to…

2. It turns out, the brewery is not optimally chossing the factors of production. To lower its production cost, which factor of production should the brewery increase and which factor should he decrease?

2. It turns out, the brewery is not optimally chossing the factors of production. To lower its production cost, which factor of production should the brewery increase and which factor should he decrease?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter9: Production Functions

Section: Chapter Questions

Problem 9.9P

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