Hi, I need help with microeconomics please 6. How to compute the optimal combina

Question

Hi, I need help with microeconomics please

6. How to compute the optimal combination of labor and capital Aa Aa Oliver's Oil Change sells oil changes in a purely competitive market. The table below shows Oliver's daily total product schedule, using labor and capital. We assume that labor and capital may be used independently-that is, having more of one does not increase the productivity of the other. Therefore, the total number of oil changes that Oliver's produces is obtained by adding the quantity of oil changes produced by labor to the quantity produced by capital. For example, if Oliver's uses three units of labor, the quantity produced by labor is 21 oil changes, and if it uses three units of capital, the quantity produced by capital is 19 oil changes. Therefore, if it uses three units of labor and three units of capital, it produces a total of 21 19 40 oil changes. Labor costs $280 per day, and capital costs $105 per day. Quantity of Total Product Quantity of Total Product Labor (Oil changes) Capital (Oil changes) 0 8 15 21 26 15 19 3 4 profit-maximizing combination of labor and capital s Assume that the market price of an oil change is s35. The profit-maximizing combination of labor oil changes. of labor and of capital, producing a total of Suppose Oliver's wanted to produce the number of oil changes you found in your previous answer. The profit-maximizing combination of resources you found before producing that quantity the least-cost method of

Explanation / Answer

For Profit - Maximization, Marginal revenue = Marginal cost

Thus, profit maximization quantity of labor is 1.

Thus, profit maximization quantity of capital is 4. Total Output = 8 + 22 = 30 oil changes

The profit maximization combination of labor and capital is 1 of labor and 4 of capital producing a total of 30 oil changes

Quantity of Labor Total Product (Oil Changes) Marginal Product Marginal Cost Marginal Revenue 0 0 0 1 8 8 280 280 2 15 7 280 245 3 21 6 280 210 4 26 5 280 175

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