PROFIT-MAXIMIZING INPUT USAGE


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PROFIT-MAXIMIZING INPUT USAGE 2 answers below » Consider a price-taking firm that has total fixed cost of $50 and faces a market-determined price of $2 per unit for its output. The wage rate is $10 per unit of labor, the only variable input. Using the following table, answer the questions below. Document Preview: Consider a price-taking firm that has total fixed cost of $50 and faces a market-determined price of $2 per unit for its output. The wage rate is $10 per unit of labor, the only variable input. Using the following table, View complete question » Consider a price-taking firm that has total fixed cost of $50 and faces a market-determined price of $2 per unit for its output. The wage rate is $10 per unit of labor, the only variable input. Using the following table, answer the questions below. Document Preview: Consider a price-taking firm that has total fixed cost of $50 and faces a market-determined price of $2 per unit for its output. The wage rate is $10 per unit of labor, the only variable input. Using the following table, answer the questions below.
(1).
(2)
(3)
(4)
(5)
(6)
Units of labor
Output
Marginal product
Marginal revenue product
Marginal cost
Profit
 1
 5
_______
_______
_______
_______
 2
15
_______
_______
_______
_______
 3
30
_______
_______
_______
_______
 4
50
_______
_______
_______
_______
 5
65
_______
_______
_______
_______
 6
77
_______
_______
_______
_______
 7
86
_______
_______
_______
_______
 8
94
_______
_______
_______
_______
 9
98
_______
_______
_______
_______
10
96
_______
_______
_______
_______
a.   Fill in the blanks in column 3 of the table by computing the marginal product of labor for each level of labor usage.
b.   Fill in the blanks in column 4 of the table by computing the marginal revenue product for each level of labor usage.
c.   How much labor should the manager hire in order to maximize profit? Why?
d.   Fill in the blanks in column 5 of the table by computing marginal cost.
e.   How many units of output should the manager produce in order to maximize profit? Why?
f.   Fill in the blanks in column 6 with the profit earned at each level of labor usage.
g.   Do your answers to parts c and e maximize profit? Does it matter whether the manager chooses labor usage or chooses output in order to maximize profit? Why?
h.   How much labor should the manager hire when the wage rate is $20? How much profit is earned? Is marginal product greater or less than average product at this level of labor usage? Why does it matter? Attachments: Econ-1.docx View less » Dec 10 2014 10:09 AM

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