economics

Pyramid corporation is currently employing 20 tons of cement and 40 tons of steel to produce 50 000 square feet of shopping in a mall. Cement cost $20 a ton and steel cost $60 a ton. At the input quantities employed, MPc = 12 and MPs = 6.
1)show the situation in a Isoquent-isocost diagram.
2)is Pyramid corp. minimizing its long term costs?
3)if not what should it do if it wants to produce 50 000 square feet of shopping mall at minimum long term cost?Explain and show the diagram.
4)in the long run, what is the MRTS?

1) Cant really draw a graph here. But, put concrete on the y axis, steel on the x axis. With the current budget, the corporation can buy 3 times as much concrete as steel. Draw an isocost line with a slope -3. Now calculate the marginal rate of substitution in production. Two units of steel, at the margin, gives the same productivity as 1 unit of concrete. Draw an isoquant with a slope of 1/2. Both lines intersect at 20 cement, 40 steel.

2) obviously no.
3) If the marginal products are constant at all combinations of production, you will get a corner solution -- use only concrete. Otherwise more information is needed.
4) What is MRTS -- marginal rate of ??. Probably 3 tons concrete for 1 ton of steel.

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asked by Tinu

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