Labor (Price $21) Capital (Price = $30) (2) Total (3) (4) (5)Margi(1\') Units of
ID: 1125377 • Letter: L
Question
Labor (Price $21) Capital (Price = $30) (2) Total (3) (4) (5)Margi(1') Units of Total Marginal Total MRP Units of ProductMargitanal Resour(Output) naRevenu Revenue Resour Produc Product Revenu $33 ce (L) (Mp) Produ e ct (Mp) product ce (K)t (Output $4x2 S4x2(MRP)S3 $0 $36 $27 $68$24 $96$21 $120 $90 $140 $15 $144 $3 0 24. 46 $96$72 $184 $66 $264$60 $336 $54 $400 $48 $440 $30 24 17 24 30 35 36 20 6 84 100 110 18 6 10 6 735 1$140 $37104 6 $416 $312 Given the prices of capital and labor, select the profit maximizing combination of capital and labor. Explain your methods in detailExplanation / Answer
Each resource is employed to the point where MRP ( Marginal Revenue Product ) = Price . The additional revenue generated from using one more unit of input should not exceed price of one unit of input , otherwise there will be a loss .
Marginal Revenue Product is the additional revenue generated from using one more unit of the input .
Since labour price = 21 $ . MRP = 21$ at 3 units of labour . Hence 3 units of labour should be hired .
Since capital price = 30$ . MRP = 30$ at 6 units of capital . Hence 6 units of capital should be employed .
So combination = 3 units of labour , 6 units of capital .
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