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Author Question: Julia is offered two options of government subsidies: 100 food stamp or 100 cash. If she receives ... (Read 75 times)

humphriesbr@me.com

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on: Jul 1, 2018
Julia is offered two options of government subsidies: 100 food stamp or 100 cash. If she receives 100 cash, she will spend 80 on food.
 
  If equivalent evaluation is measured for the situation when only 100 is available to her, the equivalent evaluation is A) greater than 100.
  B) equal to 100.
  C) less than 100.
  D) Not enough information.

Question 2

Suppose the production function is q = 12 L0.25 K0.75. Determine the long-run capital-to-labor ratio (K/L) if the cost a unit of capital (r) is three times the cost of a unit of labor (w).
 
  What will be an ideal response?


mirabriestensky

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Reply #1 on: Jul 1, 2018
Answer to Question 1

C

Answer to Question 2

The firm minimizes costs by setting MRTS = w/r. MRTS = MPL/MPK = K/3L = 1/3 = w/r. This firm will set K/L equal to one.


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