To Dig a Trench,each Worker Needs a Shovel

question 43

Essay

To dig a trench,each worker needs a shovel.Workers can only use one shovel at a time.Workers without shovels do nothing,and shovels cannot operate on their own.What kind of production technology is this? Graphically (with isocost and isoquant lines)determine the optimal number of shovels and workers used by a firm to dig two trenches when w = r = 10.What will be the (long-run)total cost of the two trenches? What will happen if the rental rate drops to $5 while the wage remains at $10? Add the relevant lines to your graph and compute the new optimal quantity of inputs and total cost.

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Definitions:

Reported Gain

The profit reported on financial statements, reflecting the difference between the sale price of an asset and its book value.

Equity Method

An accounting technique used to record investments in other companies, recognizing income proportional to ownership.

Consolidation

The process of combining the financial statements of separate but related entities into a single set of financial statements for the group.

Consolidated Net Income

The total net income of a parent company and its subsidiaries, after adjusting for intercompany transactions, reported as a single figure.