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Can anyone show me how to work this economics problem. This is a practice question 1. Optimal choice of capital Caroline makes sweaters in her home.
Can anyone show me how to work this economics problem. This is a practice question
1. Optimal choice of capitalCaroline makes sweaters in her home. Starting with just some knitting needles and yarn, she was able to knit 70 sweaters per year. Now some local stores have expressed interest in her designs and offered to buy her sweaters for $10 each. This makes it worthwhile for her to invest in some capital; in particular, she could produce many more sweaters if she invested in one or more looms, as shown in the following table. Assume that Caroline's sweater business is a perfectly competitive firm.
Complete the following table by calculating the marginal physical product (MPP) of each loom and the marginal revenue product (MRP) of each loom.
Quantity of InputOutputMPP of Each LoomMRP of Each Loom(Looms)(Sweaters per year)(Sweaters)(Dollars)07011302181322642655301If the rental price of a loom is $420 per year, Caroline should use .
Suppose the demand for sweaters is very elastic, while the demand for cigarettes is very inelastic.
Suppose that looms are used exclusively in the production of sweaters and that tobacco is used exclusively in the production of cigarettes. Which of the following might we expect?
The demand for tobacco would be more elastic than the demand for looms.
The supply of tobacco would be more elastic than the supply of looms.
The demand for tobacco would be less elastic than the demand for looms.
The supply of tobacco would be less elastic than the supply of looms.
