Question

According to The Wall Street Journal, Mitsubishi Motors recently announced a major restructuring plan in an attempt to reverse declining global sales. Suppose that as part of the restructuring plan Mitsubishi conducts an analysis of how labor and capital are used in its production process. Prior to restructuring Mitsubishi’s marginal rate of technical substitution is 0.17 (in absolute value). To hire workers, suppose that Mitsubishi must pay the competitive hourly wage of ¥1,780. In the study of its production process and markets where capital is procured, suppose that Mitsubishi determines that its marginal productivity of capital is 0.8 small cars per hour at its new targeted level of output and that capital is procured in a highly competitive market. The same study indicates that the average selling price of Mitsubishi’s smallest car is ¥1,250,000. Determine the rate at which Mitsubishi can rent capital and the marginal productivity of labor at its new targeted level of output

Answer 1

Answer:

Rental rate of capital ¥1,000,000

Marginal Product of Labor=0.001424

Explanation:

Calculation to determine the rate at which Mitsubishi can rent capital and the marginal productivity of labor

Calculation for the RENTAL RATE OF CAPITAL using this formula

r=MPK×P

Let plug in the formula

r=0.8×¥1,250,000

r=¥1,000,000

Therefore the rental rate of capital is ¥1,000,000.

Calculation for the MARGINAL PRODUCT OF LABOR

1,780=¥1,250,000*MPL

Hence,

Marginal Product of Labor=1,780/¥1,250,000

Marginal Product of Labor=0.001424

Therefore, the marginal product of labor is 0.001424 cars per hour