Answered: Units of MP of Units of MP of Capital…

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

Suppose the productivity of capital and labor are as shown in the accompanying table. 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?

Units of
MP of
Units of
MP of
Capital
Capital
Labor
Labor
- 24
- 21
18
8
15
7
9
6
3
- -IN
LO VO
N co
2.
3.
O7 CO

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