1. Optimal choice of capital Megan makes sweaters in her home. Starting with just some knitting needles and yarn, she was able to knit 50 sweaters per year. Now some local stores have expressed interest in her designs and offered to buy her sweaters for $20 each. This makes it worthwhile for her to invest in some capital; in particular, she could produce many more sweaters if she invested in one or more looms, as shown in the following table. Assume that Megan's sweater business is a perfectly competitive firm. Complete the following table by calculating the marginal physical product (MPP) of each loom and the marginal revenue product (MRP) of each loom. Quantity of Input MPP of Each Loom MRP of Each Loom (Looms) Output (Sweaters per year) (Sweaters) (Dollars) 0 50 1 90 40 800 2 120 30 600 3 142 22 440 4 159 17 340 5 174 15 300 If the rental price of a loom is $320 per year, Megan should use Suppose the demand for sweaters is very elastic, while the demand for cigarettes is very inelastic. Suppose that looms are used exclusively in the production of sweaters and that tobacco is used exclusively in the production of cigarettes. Which of the following might we expect? The supply of tobacco would be less elastic than the supply of looms. The demand for tobacco would be more elastic than the demand for looms. O The demand for tobacco would be less elastic than the demand for looms. The supply of tobacco would be more elastic than the supply of looms.