What is the last dollar rule for cost-minimization? Provide a brief explanation (in words) as well as the corresponding mathematical equality
If the firm is producing at a point where the isocost line is steeper than the isoquant, what does the last dollar rule imply (i.e., where is the last dollar most productive, L or K) and how should the firm alter its capital and labor in the long run?
The last dollar a firm spends on capital should have the same impact on output as the last dollar a firm spends on labor in order to be minimizing costs:
MPL/w = MPK/r
If the isocost is steeper than the isoquant, then
MRTS < w/r
This implies MPL/w < MPK/r, in which case the last dollar is more productive when employing capital. The firm should increase the amount of capital and decrease the amount of labor in order to minimize its costs.
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Indicate whether the statement is true or false
"If I didn't have class tonight, I would save the $4 campus parking fee and spend four hours at work where I earn $10 per hour." The opportunity cost of attending class this evening is: a. $4
b. $40. c. $44. d. $0.
Which of the following statements is false?
A) The Dow Jones Industrial Average went down by 40 percent during the decade of the 1930s. B) Based on data from the period between 1926 and 2004, the probability of having a positive return on an investment in the stocks contained in the Dow Jones Industrial Average would have been 97.1 percent if the stocks had been held for 10 years. C) When reading the stock market page of a newspaper, if the column marked "Div." is blank, it means that the company does not currently pay out dividends. D) A stock that yields 4 percent is better than a stock that yields 5 percent, all else being the same.
Other things being equal, a reorganization of the OPEC cartel to permit it to increase world oil prices by 70 percent would most likely have which effect?
a. It would shift the aggregate demand curve right and the aggregate supply curve left b. It would shift the aggregate supply curve left c. It would shift the aggregate supply curve right d. It would shift the aggregate demand curve right