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Homework answers / question archive /  Diamond Brewery is re-evaluating its optimal combination of inputs (which are imperfect substitutes) as a result of recent union-negotiated wage increases

 Diamond Brewery is re-evaluating its optimal combination of inputs (which are imperfect substitutes) as a result of recent union-negotiated wage increases

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 Diamond Brewery is re-evaluating its optimal combination of inputs (which are imperfect substitutes) as a result of recent union-negotiated wage increases.  At the present time, the MP of labor on the production line is 10 cases of beer per hour and the price of a unit      labor service (PL) is $10/hour.  The MP of capital is 12 cases of beer per hour, and the

      price of a unit of capital's service (PK) is $8/hour.

 

  1.  Employ the least-cost input rule to determine whether the input combination at

                  Diamond Brewery is optimal.  Explain why or why not.                        

            b) If the present input combination is not optimal, how can Diamond Brewery reduce cost  of production for a given output or increase output with a given total cost? (Explain  whether and why the company should use more capital and less labor, or less capital and more labor.)

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