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Introduction to Economics written assignment unit 3

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15 views4 pages

Introduction to Economics written assignment unit 3

Uploaded by

Hamza Yasine
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction to Economics= ECON 1580-01

Written assignment= UNIT 3

INSTRUCTOR = OGOCHUKU FISHER

Conforming Capital and Labor Mix for Optimal Production


The decision-making process regarding resource allocation between
capital and labor is very important and is a critical determinant of an
establishment's efficiency and productivity. With the marginal product
(MP) of capital at 60 and labor at 20, alongside their respective costs of
$6 and $2.50, an establishment can discern valuable insights into its
functional effectiveness (Brealey & Myers, 2016; Mankiw, 2014).
In order to identify the optimal resource allocation, one has or must
evaluate the marginal productivity of each factor in relation to its cost.
The calculation for the marginal product per dollar spent on capital
(MPK) is:
\[ MPK = \frac{MP_{capital}}{Price_{capital}} = \frac{60}{6} = 10 \]
For labor (MPL):
\[ MPL = \frac{MP_{labor}}{Price_{labor}} = \frac{20}{2.50} = 8 \]
These computations illustrate that capital offers a marginal product of 10
per dollar spent, surpassing labor's return of 8 (Varian, 2010).
Consequently, the establishment is not capitalizing on its resources
optimally; it should increase capital investment while reducing labor
dependency.
Practical implementations might involve adopting advanced technology
or improving efficiency in machinery to minimize labor requirements
while enhancing output levels (Haskel & Hurtenbach, 2010;
Brynjolfsson & McAfee, 2014). This strategic reallocation can enhance
productivity, reduce costs, and increase profits, resulting in improved
competitiveness over time (Porter, 1985).
Emphasizing optimal resource allocation aligns with economic
principles that maximize outputs based on inputs (Tobin, 1969). The
establishment stands to gain not only from immediate financial benefits
but also from sustained growth and long-term viability in the market
(Schumpeter, 1942; Rosenberg, 1994).
In conclusion, the alignment of capital and labor through strategic
resource allocation fosters an establishment's productivity and cost
efficiency, contributing to a robust competitive advantage in today's
dynamic market landscape.
References
. Brealey, R. A., & Myers, S. C. (2016). Principles of Corporate Finance.
McGraw-Hill Education.
. Brynjolfsson, E., & McAfee, A. (2014). The Second Machine Age. W.
W. Norton & Company.
. Haskel, J., & Hurtenbach, M. (2010). Capitalization and the
Productivity of Labor. Journal of Productivity Analysis, 34(1), 43-58.
. Porter, M. E. (1985). Competitive Advantage. The Free Press.
. Schumpeter, J. A. (1942). Capitalism, Socialism and Democracy.
Harper & Brothers.

. Varian, H. R. (2010). Intermediate Microeconomics: A Modern


Approach. W. W. Norton & Company.
. Kaldor, N. (1966). Marginal Productivity and the Theory of
Distribution. The Review of Economic Studies, 33(3), 309-319.
Friedman, M. (1953). The Methodology of Positive Economics. In
Essays in Positive Economics.

. Acemoglu, D. (2009). Introduction to Modern Economic Growth.


Princeton University Press.
. Marshall, A.( 1890). Principles of Economics. Macmillan.
. Samuelson, P. A., & Nordhaus, W. D.( 2010). Economics. McGraw-
Hill Education.
. Mankiw, N. G.( 2014). Principles of Economics. Cengage Learning.
Becker, G. S.( 1964). Human Capital. University of Chicago Press.
. Pindyck, R. S., & Rubinfeld, D. L.( 2013). Microeconomics. Pearson
Educational Limited.
. Jones, C. I.( 2016). preface to Economic Growth. W.W. Norton &
Company.

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