When operating in the Long-run a firm can change its capital and its labor.. Every firm has to decide what combination of labor(L) and capital(K) they should employ. . The Least-Cost Combination of Resources. ID: 640449
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Presentations text content in Optimal Combination of Resources
Slide1
Optimal Combination of Resources
When operating in the Long-run a firm can change its capital and its labor.
Every firm has to decide what combination of labor(L) and capital(K) they should employ.
Slide2
The Least-Cost Combination of Resources
A firm would like to produce the most output possible for a given resource budget
A firm also wants to produce a given level of output at the lowest total coast
To accomplish this it should allocate its resource budget between units of labor and units of capital to satisfy the following: (MPP=Marginal Physical Product) (MRC=Marginal Resource Cost)
Slide3
Least Cost Combination (Perfectly Competitive)
If the resource markets are perfectly competitive, the price the firm pays for an extra unit of a resource is equal to MRC. In this case:
(P ) is the price of a unit of labor
(P ) is the price of a unit of capital
Slide4
Profit Maximizing Combination of Resources
A firm cannot maximize its profits without using the least-cost combination of resources.
An additional condition must be satisfied to guarantee that profits are maximized.
It looks similar to the Least-Cost Combination of Resources 2 differencesThe firm is comparing MRP, not MPP, to MRCThe two rations must both be equal to 1.
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DownloadNote - The PPT/PDF document "Optimal Combination of Resources" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Presentations text content in Optimal Combination of Resources
Optimal Combination of Resources
When operating in the Long-run a firm can change its capital and its labor.
Every firm has to decide what combination of labor(L) and capital(K) they should employ.
Slide2The Least-Cost Combination of Resources
A firm would like to produce the most output possible for a given resource budget
A firm also wants to produce a given level of output at the lowest total coast
To accomplish this it should allocate its resource budget between units of labor and units of capital to satisfy the following: (MPP=Marginal Physical Product) (MRC=Marginal Resource Cost)
Slide3Least Cost Combination (Perfectly Competitive)
If the resource markets are perfectly competitive, the price the firm pays for an extra unit of a resource is equal to MRC. In this case:
(P ) is the price of a unit of labor
(P ) is the price of a unit of capital
Slide4Profit Maximizing Combination of Resources
A firm cannot maximize its profits without using the least-cost combination of resources.
An additional condition must be satisfied to guarantee that profits are maximized.
It looks similar to the Least-Cost Combination of Resources 2 differencesThe firm is comparing MRP, not MPP, to MRCThe two rations must both be equal to 1.
Slide5Profit Maximizing Combination (Perfectly Competitive)
If the resource markets are perfectly competitive, the condition can be written as