1. Optimal choice of capitalEleanor makes sweaters in her home. Starting with just some knitting needles and yarn, she was able to knit 60 sweaters per year. Now some localstores have expressed interest in her designs and offered to buy her sweaters for $10 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 Eleanor'ssweater 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(Looms)Output(Sweaters per year)MPP of Each Loom(Sweaters)MRP of Each Loom(Dollars)012345601101501842132385040342925If the rental price of a loom is $270 per year, Eleanor should use500400340290250Suppose 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 ofthe following might we expect?O The supply of looms would be less elastic than the supply of tobacco.O The demand for looms would be less elastic than the demand for tobacco.O The demand for looms would be more elastic than the demand for tobacco.O The supply of looms would be more elastic than the supply of tobacco.

Marginal Physical Product: MPP describes the variation in overall production or product amount that…

Answered: MRP of Each Loom

Business

Economics

MRP of Each Loom

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1. Optimal choice of capital
Eleanor makes sweaters in her home. Starting with just some knitting needles and yarn, she was able to knit 60 sweaters per year. Now some local
stores have expressed interest in her designs and offered to buy her sweaters for $10 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 Eleanor'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
(Looms)
Output
(Sweaters per year)
MPP of Each Loom
(Sweaters)
MRP of Each Loom
(Dollars)
0
1
2
3
4
5
60
110
150
184
213
238
50
40
34
29
25
If the rental price of a loom is $270 per year, Eleanor should use
500
400
340
290
250
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?
O The supply of looms would be less elastic than the supply of tobacco.
O The demand for looms would be less elastic than the demand for tobacco.
O The demand for looms would be more elastic than the demand for tobacco.
O The supply of looms would be more elastic than the supply of tobacco.

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Step 1: Define MRP and MPP

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Step 3: Determine MRP

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Step 4: Determine the quantity of looms employed

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