Neco Model Questions Vol1 2018 Economics Question 9

Practice objective / multiple choice question 9 from the 2018 Neco Model Questions Vol1 Economics examination.

Neco Model Questions Vol1 2018 Economics Objective / Multiple Choice Medium Difficulty
Question 9 NECO_MODEL_QUESTIONS_VOL1 • 2018 • ECONOMICS • objective

A firm produces output according to the production function \(Q = L^{0.6} K^{0.4}\). Input prices are wage \(w = \text{₦}4\) per unit of labour and rental rate \(r = \text{₦}10\) per unit of capital. The firm needs to produce \(Q = 100\) units at minimum cost. (a) Find the cost‑minimising ratio \(L/K\). (b) Determine the exact quantities of labour \(L\) and capital \(K\) required. (c) Compute the minimum total cost. (d) If the wage rises to \(w = \text{₦}6\) while the rental rate remains unchanged, recompute the optimal \(L\), \(K\) and the new total cost. (e) Calculate the percentage increase in total cost caused by the wage rise, to one decimal place.

Answer Options

A. Initial ratio L/K = 4.0; L ≈ 180.0, K ≈ 45.0; Cost ≈ ₦1,200.0. After wage rise: L/K = 2.8; L ≈ 150.0, K ≈ 53.6; Cost ≈ ₦1,380.0; Cost increase ≈ 15.0%
B. Initial ratio L/K = 3.5; L ≈ 165.0, K ≈ 47.1; Cost ≈ ₦1,150.0. After wage rise: L/K = 2.2; L ≈ 130.0, K ≈ 59.1; Cost ≈ ₦1,350.0; Cost increase ≈ 17.4%
Correct Answer C. Initial ratio L/K = 3.75; L ≈ 169.7, K ≈ 45.3; Cost ≈ ₦1,131.3. After wage rise: L/K = 2.5; L ≈ 144.3, K ≈ 57.7; Cost ≈ ₦1,442.8; Cost increase ≈ 27.6%
D. Initial ratio L/K = 3.75; L ≈ 170.0, K ≈ 45.3; Cost ≈ ₦1,140.0. After wage rise: L/K = 2.5; L ≈ 145.0, K ≈ 58.0; Cost ≈ ₦1,460.0; Cost increase ≈ 28.5%
Correct Answer
C
Correct Option:
Initial ratio L/K = 3.75; L ≈ 169.7, K ≈ 45.3; Cost ≈ ₦1,131.3. After wage rise: L/K = 2.5; L ≈ 144.3, K ≈ 57.7; Cost ≈ ₦1,442.8; Cost increase ≈ 27.6%

About This Question

This is Neco Model Questions Vol1 2018 Economics Question 9. It is one of the objective questions from the 2018 Neco Model Questions Vol1 Economics examination.

Difficulty level: Medium .

View More Neco Model Questions Vol1 2018 Economics Questions More Neco Model Questions Vol1 Practice Questions Back to Questions

Master the Exam!

You've seen a preview, but there are thousands more questions plus AI tutor to break down complex solutions.

Unlock Full Access Available for Android & Windows
Chat with Support