A firm can use two different production technologies, with capital and labor requirements at each level of output as follows:
Technology 1 Technology 2
Output K L K L
11 6 1 2 7
12 7 3 3 10
13 9 5 4 14
14 12 7 5 20
(a) Suppose the firm is operating in a low-wage country, where capital cost is $4 per unit and labor cost is $2 per worker. For each level of output, which technology is the cheapest? Show your work.
(b) Now suppose the firm is operating in a high-wage country, where capital cost is $2 per unit and labor cost is only $4 per worker. For each level of output, which technology is the cheapest? Show your work.
(c) Suppose the firm moves from a high-wage to a low-wage country but that its level of output remains constant at 13 units. How will its total employment change? Explain.