Managerial

Economics
Santanu Gupta

A firm has access to two technologies, A and B. Technology A

requires 2 units of labor L and 3 units of capital K to produce
a unit of final output. Technology B requires 3 units of labor L
and 2 units of capital K to produce a unit of final output.
Labor costs w1 per unit and capital costs w2 per unit.
Find the long run cost function when there is no constraint on
the availability of any input? Find the short run function cost
if the amount of capital available in the short run is less than
and equal to 4.

A firm has access to two technologies, A and B. Technology A

requires 4 units of labor L or 1 units of capital K to produce a
unit of final output. Technology B requires 1 units of labor L
or 4 units of capital K to produce a unit of final output.
Find out the maximum output that the firm can produce if the
firm is endowed with 2 units of labor and 5 units of capital.
Comment on whether the same combination (2 units of labor
and 5 units of capital) can be an optimal combination if labor
and capital had to be purchased from outside to produce the
same output if the cost of labor is 2 per unit and that of
capital is 3 per unit. (5 marks)

A firm has access to two technologies, A and B. Technology A

requires 3 units of labor L and 4 units of capital K to produce
a unit of final output. Technology B requires 4 units of labor L
and 3 units of capital K to produce a unit of final output.
Find out the maximum output that the firm can produce if the
firm is endowed with 5 units of labor and 3 units of capital.
Comment on whether the same combination (5 units of labor
and 3 units of capital) can be an optimal combination if labor
and capital had to be purchased from outside to produce the
same output both of which cost Rs. 1 per unit. (5 marks).

There are two technologies available to a producer, technology

1 can be represented by y = x1 + x2 and technology 2 by y =
min(4x1, 4x2), where y represents the output and x1 and x2,
represents the two inputs. The price of x1 is w1 and that of x2
is w2.
Determine under what situation the producer will use
technology 1 and under what situation he will use technology
2.