Assignment
(NOTE: I AM INTENTIONALLY SWITCHING BETWEEN WHAT INPUT IS ON THE Y-AXIS AND WHAT INPUT IN ON THE X-AXIS, SO THINK ABOUT HOW YOU DRAW YOUR ISOCOSTS)
1. In order to avoid the high cost of shipping cars around the world Honda manufactures Civics in six countries: US, China, Indonesia, Turkey, Brazil, New Zealand, UK and Pakistan. The graph below shows the isoquant for the production of 20,000 Civics. Honda can produce Civics using various degrees of automation at the plants, so to some degree Honda can substitute labor for . capital and vice versa. In the United States Honda's labor costs are $75,000 per worker and in Brazil its labor costs are $30,000 per worker. The price of capital is $50,000 per unit in the US and $60,000 per unit in Brazil. On the graph show Honda's optimal mix of capital (Kus) and labor (Lus) in their US plant. Be sure to show their isocost curve (ICus) corresponding to that optimal mix of inputs.
a. On the graph show Honda's optimal mix of capital (KBZ) and labor (LBZ) in their Brazilian plant. Be sure to show their isocost curve (ICBZ) corresponding to that optimal mix of inputs.
b. What is Honda's Average Labor Cost per car at its Brazilian factories? At their US factories?
c. What is Honda's Average Capital Cost per car at its Brazilian factories? At their US factories?
d. Over the next decade economists anticipate that wages in Brazil will rise at a faster rate than in the United States. How would this impact the relative labor intensity in Honda's US and Brazilian factories.
2. The graph below shows the 2,000 drink iso-quant fotPaddy's Pub a local bar in Ike city of Philadelphia. The price of labor in the city is $10 per unit and the price of capital in the city is $10 per unit.
a. What is the optimal mix of Labor and Capital for Paddy's Pub?
3. The graph below shows the 500-patient and 400-patient pew day iso-quaigts for a local hospital. The price of labor is $60,000 per worker and the price of capital is $80,000 per unit of capital.
a. What is the slope of the firm's isocosts?
b. Initially the hospital serves 500 patients per day, in the graph show how many workers (LI) and how many units of capital (IQ will they use to serve 500 patients along with the corresponding isocost (IQ) for that optimal mix of labor and capital.
c. Suppose the hospitallwishes to cut back its output and serve only 400 patients per day. How many workers (L2) and units of capital (K2) will the firm use to serve 400 patients in the short-run? Show these points on the isoquant and the corresponding isocost (IC2) in the graph.
d. How many workers (L3) and units of capital (K3) will the firm use to serve 400 patients in the long-run? Show these points on the isoquant and the corresponding isocost (IC3) in the graph.