Question

2. A firm's product sells for $2 per unit in a highly competitive market. The firm pro duces output using capital (which it rents at $75 per hour) and labor (which is paid

Can you answer these questions please. all of them

Answer 1

Answer 2 ;

a) Capital is variable cost because it keeps on changing with the level of output. Labor is a fixed cost as it is hired undera contract of L = 20

b) Fixed costs are 20*15 = $300

c) 475 units can be produced by either 6 or 7 units of capital so the VC of producing 475 units is 450 or 525

d) Firm mus hire capital upto the point where the difference between the VMPK and its rental price is minimum. This occurs at K = 6

e) Total cost = 300 + 6*75 = $750. Total revenue = 2*475 = $950. Profit is found to be TR - TC = $200

f) Till K = 3, there is increasing marginal returns,

g) From K = 4 till k = 7 there are diminshing returns

h) From K = 8 onwards there are negative returns

K	L	Q	MPK	APK	APL	VMPK
0	20	0
1	20	50	50	50.0	2.5	100
2	20	150	100	75.0	7.5	200
3	20	300	150	100.0	15.0	300
4	20	400	100	100.0	20.0	200
5	20	450	50	90.0	22.5	100
6	20	475	25	79.2	23.8	50
7	20	475	0	67.9	23.8	0
8	20	450	-25	56.3	22.5	-50
9	20	400	-50	44.4	20.0	-100
10	20	300	-100	30.0	15.0	-200
11	20	150	-150	13.6	7.5	-300

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