1. + Cost-Minimizing Input Combination Students will explicitly assess information in relation to the Reffbru Galoshes Company in order to draw conclusions about the firms profit maximizing quantity of labor and the firms cost-minimizing capital blend Homework: 1.Optimal Combination of Resources Sheet

2. + Reffbru Galoshes Company Analyze the information about the firm’s wekly production to determine the profit maximizing quantity of labor to hire accounting for multiple market events…

3. + Input Combination for Reffbru Co. VS. Labor-intensive production vs. capital-intensive production Since Reffbru Co. can product profit maximizing Q with multiple combinations of input, they will aim to minimize their costs of production (cost minimizing input combination). We will use marginal analysis to determine right blend of capital vs. labor.

4. + Cost Minimizing Rule: 2 possible blends of input (labor & capital): Assume Reffbru Co. determines that the marginal product of labor is 200 pairs of galoshes & marginal product of capital is 400 pairs of galoshes. Assume Reffbru Co. pays employees $10/hr. and rents industrial sewing machines for $40/hr. 1. Calculate the MP L and MP C per $1: 2. Is the firm getting the most output possible from their budget? If not explain how it should reallocate funds. MP L Wage MP C Rental Rate Maximize benefit per $ for each factor of production

5. + Cost Minimizing Rule: 2 possible blends of input (labor & capital): Assume Reffbru Co. determines that the marginal product of labor is 200 pairs of galoshes & marginal product of capital is 400 pairs of galoshes. Assume Reffbru Co. pays employees $10/hr. and rents industrial sewing machines for $40/hr. 1. Calculate the MP L and MP C per $1: 2. Is the firm getting the most output possible from their budget? If not explain how it should reallocate funds. NO! They can do better by reallocating funds to labor  where the firm yields a greater Q output per $ MP L Wage MP C Rental Rate Maximize benefit per $ for each factor of production Labor:Capital: 200 $10 20 G/$ = 400 $40 = 10 G/$

6. + Rental Rate Interchangeable with Wage Rate in the Product/Labor Markets A perfectly competitive product market and a firm renting machines from the perfectly competitive product market: we can use rental rate in lieu of wage rate when we are renting capital (do not pay capital a wage)