Suppose the productivity of labor and capital are as shown below. The output of

Question

Suppose the productivity of labor and capital are as shown below. The output of these resources sells in a

perfectly competitive market for $5 per unit. Both labor and capital are hired under perfectly competitive conditions

at $40 and $75 per day, respectively.

a. What is the profit-maximizing combination of labor and capital for this firm?

b. What is the firm's output? what is its profit?

please show work

Units of capital MP of capital Units of labor MP of Labor 1 24 1 11 2 21 2 9 3 18 3 8 4 15 4 7 5 9 5 6 6 6 6 4 7 3 7 1 8 1 8 0.5

Explanation / Answer

Units of capital MP of capital Units of labor MP of Labor MPl/MPk w/r 1 24 1 11 0.46 0.53 2 21 2 9 0.43 0.53 3 18 3 8 0.44 0.53 4 15 4 7 0.47 0.53 5 9 5 6 0.67 0.53 6 6 6 4 0.67 0.53 7 3 7 1 0.33 0.53 8 1 8 0.5 0.50 0.53 Units of capital MP of capital Units of labor MP of Labor MPl/MPk w/r TP TR TC Profit 1 24 1 11 0.46 0.53 35.00 175.00 115.00 60.00 2 21 2 9 0.43 0.53 65.00 325.00 230.00 95.00 3 18 3 8 0.44 0.53 91.00 455.00 345.00 110.00 4 15 4 7 0.47 0.53 113.00 565.00 460.00 105.00 5 9 5 6 0.67 0.53 128.00 640.00 575.00 65.00 6 6 6 4 0.67 0.53 138.00 690.00 690.00 0.00 7 3 7 1 0.33 0.53 142.00 710.00 805.00 -95.00 8 1 8 0.5 0.50 0.53 143.50 717.50 920.00 -202.50

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