Orange Inc. sells cell phones in a perfectly competitive market in the short-run. Capital and labor are two resource factors used to produce the cell phones. Capital is fixed in the short-run but labor can vary. The market for hiring labor is a perfectly competitive market.
Labor is measured in worker weeks. Each worker week costs $600 of wages and Orange Inc. can hire any number of worker weeks. Each cell phone is sold at a price of $200 and can sell any number of phones that are produced. Information is given below on various amounts of labor and output.
Quantity |
Output |
Marginal Product of Labor |
Total Revenue |
Marginal Revenue |
Marginal Revenue Product |
Total Variable Cost |
Marginal Cost |
Marginal Resource Cost |
0 |
0 |
- |
- |
- |
- |
- |
- |
- |
1 |
6 |
6 |
1200 |
200 |
1200 |
600 |
100 |
600 |
2 |
11 |
5 |
2200 |
200 |
1000 |
1200 |
120 |
600 |
3 |
15 |
4 |
3000 |
200 |
800 |
1800 |
150 |
600 |
4 |
18 |
3 |
3600 |
200 |
600 |
2400 |
200 |
600 |
5 |
20 |
2 |
4000 |
200 |
400 |
3000 |
300 |
600 |
6 |
21 |
1 |
4200 |
200 |
200 |
3600 |
600 |
600 |
Using the table you created in Step 2, create a graph that illustrates the profit maximizing level of input price and input quantity for the company using marginal analysis.
The graph can be computer-generated or created by hand. Indicate the profit maximizing input quantity and input price in this graph.
The profit maximizing quantity of input is where MRP = MRC. From the table and graph it is seen that MRP = MRC = $600 at the input quantity of 4worker weeks.
Thus, the the profit maximizing input quantity is 4 worker weeks and input price is $600.
Orange Inc. sells cell phones in a perfectly competitive market in the short-run. Capital and labor...
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