Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Kraft has a plant in the Alaska and Hawaii: The wage in Alaska is $5
Kraft has a plant in the Alaska and Hawaii:
The wage in Alaska is $5.
The wage in the Hawaii is $20.
Marginal product of the last worker in Alaska is 100
Marginal product of the last worker in the Hawaii. is 500
(Size of the plants or the amount of capital equipment is unchangeable).
a. Is the firm maximizing output relative to its labor cost? Details.
b. If it is not, what should the firm do?
Expert Solution
Is the firm maximizing output relative to its labor cost? Details.
In Alaska, MP1/W1 = 100/5 = 20
In Hawaii, MP2/W2 = 500/20 = 25
Since MP1/W1 < MP2/W2, or the output produced by 1 extra dollar spent in A is lower than that in H, the firm is not maximizing the output.
b. If it is not, what should the firm do?
Since MP1/W1 < MP2/W2, the output produced by 1 extra dollar spent in A is lower than that in H, it is obviously more profitable to invest in Hawaii. Thus, the firm should hire more labours in H and less in A.
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
