Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 an
1 answer:
You might be interested in
Answer:
The expansion should be adding more workers.
Explanation:
In this case we must analyze the marginal productivity of each production factor and relate it to its cost.
The marginal productivity of the copiers, assumed constant, can be calculated as
In other words, evevry copier added will rise production in 10,000 pages/day.
The marginal productivity of the copiers, assumed constant, can be calculated as
Every worker added will increase production in 5,000 pages/day.
If the cost of a copier is 4 times the cost of a worker, the break-even point should be when the copier marginal productivity is 4 times the marginal productivity of a worker.
That means that the new copier has to produce a marginal production of at least 4*5,000=20,000 pages per day.
Because the marginal productivity of the copier is below this break-even point (10,000<20,000), we can conclude that the expansion should be adding more workers, as long as the marginal productivities remain the same.