Answer to Question #221306 in Microeconomics for sauni

Question

Mr. Kamal is an owner of the communication center at Y junction and uses four word processors and two typewriters to produce reports. The marginal product of a typewriter is 50 pages per day, and the marginal product of a word processor is 500 pages per day. The rental price of a typewriter is Rs.1 per day, whereas the rental price of a word processor is Rs.50 per day. Is Mr. Kamal utilizing type writers and word processors in a cost-minimizing manner? Which service process is more profitable? Type writer or word processing? Justify your answer.

Answer 1

at the most optimal cost the

$MPx ÷ Px=MPy ÷ Py$

Let x = typewriter, and y = word processor

then 

$MPx ÷ Px = 50 ÷ 1 = 50$

$MPy ÷ Py = 500 ÷ 50 = 10$

Clearly the two are not equal and hence Temporary services is not utilizing typewriters and processors in a cost-minimizing manner

A word processor is more profitable. When the marginal product is increasing, the total product increases at an increasing rate and hence more profits are realized.