Suppose that as part of the restructuring plan Mitsubishi conducts an
analysis of how labour and capital are used in its production process.
Prior to restructuring it’s marginal rate of technical substitution is
0.15 ( in absolute value). To hire workers. Suppose that Mitsubishi
must pay the competitive hourly wage of US$ 15. In the study of
production process and markets where capital is procured, suppose that
Mitsubishi determine that its marginal productivity of capital is 0.5
small cars per hour at its new targeted level of output and that
capital is procured in a highly competitive market. The same study
indicates that the average selling price of Mitsubishi’s smallest
car is US$ 9500. Determine the rate at which Mitsubishi can rent
capital and marginal productivity of labour at its new targeted level
of output. To minimize costs Mitsubishi should hire capital and labour
until the marginal rate of technical substitution reaches what
proportion?