Use the data in the table below to answer the following questions about a firm:

Question

Use the data in the table below to answer the following questions about a firm:

Units of Input X         Total Product              Marginal Product of X            Output Price

0                                  0                                                                     10

1                                  2                                                                     10

2                                  7                                                                     10

3                                  14                                                                   10

4                                  20                                                                   10

5                                  23                                                                   10

6                                  24                                                                   10

a/ Complete the table by calculating the marginal product of input X.

b/ Compute the marginal revenue product of input X.

c/ If the price of Input X were $30 per unit, how many units should the firm use per unit of time to maximize profit? Explain why profit is maximized.

Explanation / Answer

Ans C)

When 3 units of X are employed we get highest profit as MRPX is maximised. This is the maximum profit possible because above this MRPL =70 Profit decreases with increase in extra unit of X

Units of Input X Total Product MP of X(MPX) Price Revenue MR Marginal Revenue Product=MR*MPX 0 0 10 0 1 2 2 10 10 10 20 2 7 5 10 20 10 50 3 14 7 10 30 10 70 4 20 6 10 40 10 60 5 23 3 10 50 10 30 6 24 1 10 60 10 10

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