Perfect competition The firm’s production function has the following form: Q = f(L) = √L, where L is the number of employees. Fixed cost is $10, wage is $1, and the buyers pay the firm $10 for its product. a) For the levels of quantity of 0, 1, 2, 3, 4, 5, 6, and 7: • Calculate the fixed cost, the variable cost, the total cost, the total revenue, and the profit. • If the firm wants to maximize profit, what level of output should it choose? b) For the change in quantity from 0 to 1, from 1 to 2, …, from 6 to 7: • Calculate the marginal product of labor, the marginal cost, and the marginal revenue. • Is the marginal product of labor diminishing? • On a graph, show the marginal cost and the marginal revenue. Put the points between the whole numbers. Make sure you label the axes and the curves. Show the point where the two curves cross. c) Provide a brief explanation for the following questions: • Is the firm operating on a perfectly competitive market? • Is the market in the long-run equilibrium?
Problem 3 : Perfect competition
The firm’s production function has the following form: Q = f(L) = √L, where L is the number
of employees. Fixed cost is $10, wage is $1, and the buyers pay the firm $10 for its product.
a) For the levels of quantity of 0, 1, 2, 3, 4, 5, 6, and 7:
• Calculate the fixed cost, the variable cost, the total cost, the total revenue, and the
profit.
• If the firm wants to maximize profit, what level of output should it choose?
b) For the change in quantity from 0 to 1, from 1 to 2, …, from 6 to 7:
• Calculate the marginal product of labor, the marginal cost, and the marginal
revenue.
• Is the marginal product of labor diminishing?
• On a graph, show the marginal cost and the marginal revenue. Put the points
between the whole numbers. Make sure you label the axes and the
point where the two curves cross.
c) Provide a brief explanation for the following questions:
• Is the firm operating on a
• Is the market in the long-run equilibrium?
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