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Multiple Factors
Combining Resources
Up to this point we have analyzed the use of only one resource.
What about when a firm wants to combine different resources?
If you only have $35, what combination of robots and workers will maximize output?
Least Cost Rule
# Times Going
MP(Robots)
MP/PR
(PriceR =$10)
MP (Workers)
MP/PW
(PriceW =$5)
1st 30 3 20 4
2nd 20 2 15 3
3rd 10 1 10 2
4th 5 .50 5 1
$10 $5How much additional output does each
resource generate per dollar spent?
If you only have $35, the best combination is 2 robots and 3 workers
Least Cost Rule
# Times Going
MP(Robots)
MP/PR
(PriceR =$10)
MP (Workers)
MP/PW
(PriceW =$5)
1st 30 3 20 4
2nd 20 2 15 3
3rd 10 1 10 2
4th 5 .50 5 1
$10MPk = MPL
Pk PL$5
Resource k Resource L
Profit Maximizing Rule for a Combing Resources
MRPk = MRPL =MRCk MRCL
1This means that the firm is hiring where MRP = MRC for each resource k and L
Practice: What should the firm do – hire more, hire less, or stay put?
1. MRPL = $15; PL = $6; MRPC = $10; PC = $10
2. MRPL = $5; PL = $10; MRPC = $10; PC = $15
3. MRPL = $25; PL = $20; MRPC = $15; PC = $15
4. MRPL = $12; PL = $12; MRPC = $50; PC = $40
5. MRPL = $20; PL = $15; MRPC = $100; PC =$40
MORE
LESS
STAY PUT
MORE
MORE MORE
MORE
STAY PUT
STAY PUT
LESS