The wall street journal reported that japans No 4 automakerM

The wall street journal reported that japan\'s No 4 automaker-Mitsubishi Motors- announced a major restructuring plan in an attempt to reverse its 6 percent declining global sales,. The company\'s sales were particularly hard hit in North America, where its sales fell 29% due to combination of an unusually large number of bad loans and reduced demand resulting from tightening of its lax credit criteria. in Japan , sales have slipped 56% (excluding minivans) due, in large part, to aoutomobile recalls and attempt to cover up faulty products. 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 0.15(in absolute value). to hire workers, suppose that mitsubishi must pay the competitive hourly wage 1.330 yen. in the study of its production process and markets where capital is procured, suppose that mitsubishi determines that its marginal productivity of capital is 0.5 small cars per hour at its new targeted level output and that capital is procured in a higly competitive market. the same study indicates that the average selling price of mitsubishi\'s smallest car is 950,000 yen. determine the rate at which mitsubishi can rent capital and the marginal productivity of labor at its new targeted level of output. to minimize costs mitsubishi shoould hire capital and labor until the marginal rate of technical substitution reaches what proportion?

Solution

Instruction: Round your answer to 4 decimal places.

The rental rate of capital is ¥960,000, computed as r = MPK*P = 0.8*1,200,000 = 960,000.Therefore, the marginal product of labor is 0.0015 cars per hour, which is found by solvingMPL / 1,800 = 0.8 / 960,000. Costs are minimized when the marginal rate of technicalsubstitution is 0.0019 = w / r = 1,800 / 960,000