1. Multiple Factors

2. 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?

3. If you only have $35, what combination of robots and workers will maximize output? Least Cost Rule # Times Going MP (Robots) MP/P R (PriceR =$10) MP (Workers) MP/P W (PriceW =$5) 1st303204 2nd202153 3rd101 2 4th5.5051 $10$5 How much additional output does each resource generate per dollar spent?

4. If you only have $35, the best combination is 2 robots and 3 workers Least Cost Rule # Times Going MP (Robots) MP/P R (PriceR =$10) MP (Workers) MP/P W (PriceW =$5) 1st303204 2nd202153 3rd101 2 4th5.5051 $10 MP k = MP L P k P L $5 Resource kResource L

5. Profit Maximizing Rule for a Combing Resources MRP k = MRP L = MRC k MRC L 1 This means that the firm is hiring where MRP = MRC for each resource k and L

6. Practice: What should the firm do – hire more, hire less, or stay put? 1. MRP L = $15; P L = $6; MRP C = $10; P C = $10 2. MRP L = $5; P L = $10; MRP C = $10; P C = $15 3. MRP L = $25; P L = $20; MRP C = $15; P C = $15 4. MRP L = $12; P L = $12; MRP C = $50; P C = $40 5. MRP L = $20; P L = $15; MRP C = $100; P C =$40 MORE LESS STAY PUT MORE STAY PUT LESS