5. Suppose the productivity of capital and labor are as shown in the table below. The output of these resources sells in a purely competitive market for $1 per unit. Both capital and labor are hired under purely competitive conditions at $3 and $1, respectively. a. What is the least-cost combination of labor and capital the firm should employ in producing 80 units of output? Explain. b. What is the profit-maximizing combination of labor and capital the firm should use? Explain. What is the resulting level of output? What is the economic profit? Is this the least costly way of producing the profit- maximizing output? Capital MP of Capital Labor MP of Labor 0 0 1 23 4 2265963- 5678 1 24 1 11 21 2 9 18 3 15 4 5 6 878 1 12 8764

5. Suppose the productivity of capital and labor are as shown in the table below. The output of these resources sells in a purely competitive market for $1 per unit. Both capital and labor are hired under purely competitive conditions at $3 and $1, respectively. a. What is the least-cost combination of labor and capital the firm should employ in producing 80 units of output? Explain. b. What is the profit-maximizing combination of labor and capital the firm should use? Explain. What is the resulting level of output? What is the economic profit? Is this the least costly way of producing the profit- maximizing output? Capital MP of Capital Labor MP of Labor 0 0 1 23 4 2265963- 5678 1 24 1 11 21 2 9 18 3 15 4 5 6 878 1 12 8764

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. Suppose the productivity of capital and labor are as shown in the table below. The output of
these resources sells in a purely competitive market for $1 per unit. Both capital and labor are
hired under purely competitive conditions at $3 and $1, respectively.
a. What is the least-cost combination of labor and capital the firm should employ in producing 80
units of output? Explain.
b. What is the profit-maximizing combination of labor and capital the firm should use? Explain.
What is the resulting level of output? What is the economic profit? Is this the least costly way of
producing the profit- maximizing output?
Capital MP of Capital Labor MP of Labor
0
24
1
11
21
2
9
18
3
15
4
5
6
8464
7
2265963-
012345678
7
1
1
8
1/2
L
6. A software company in Silicon Valley uses programmers (labor) and computers (capital) to
produce apps for mobile devices. The firm estimates that when it comes to labor, MP₁ = 5 apps
per month while P₁ = $1,000 per month. And when it comes to capital, MP = 8 apps per month
while P = $1,000 per month. If the company wants to maximize its profits, it should:
C
L
a. Increase labor while decreasing capital.
b. Decrease labor while increasing capital.
c. Keep the current amounts of capital and labor just as they are.
d. None of the above.

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