Oliver\'s Oil Change sells oil changes in a purely competitive market. The table
ID: 1222121 • Letter: O
Question
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 30 oil changes, and if it uses three units of capital, the quantity produced by capital is 24 oil changes. Therefore, if it uses three units of labor and three units of capital, it produces a total of 30 + 24 = 54 oil changes. Labor costs $240 per day, and capital costs $80 per day. Assume that the market price of an oil change is $20. The profit-maximizing combination of labor and capital is of labor and of capital, producing a total of oil changes. 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.Explanation / Answer
Required table
Qty L
Product
Cost L×$240
Qty C
Product
Cost C×$80
TC
TR
Profit = TR – TC
0
0
0
0
0
0
0
0
0
1
12
$240
1
10
$80
320
440
$120
2
22
$480
2
18
$160
640
800
$160
3
30
$720
3
24
$240
960
1,080
$120
4
36
$960
4
28
$320
1,280
1,280
$0
Total cost (TC) is the sum total of labor cost and capital cost.
Total revenue (TR) is the multiplication of $20 and the total product.
The maximum profit is $160 in the above table. Therefore, the corresponding figures of labor and capital are 2 each. The combined production is (22 + 18 =) 40 oil changes.
The profit-maximizing combination of labor and capital is 2 quantity of labor and 2 quantity of capital, producing a total of 40 oil changes.
Qty L
Product
Cost L×$240
Qty C
Product
Cost C×$80
TC
TR
Profit = TR – TC
0
0
0
0
0
0
0
0
0
1
12
$240
1
10
$80
320
440
$120
2
22
$480
2
18
$160
640
800
$160
3
30
$720
3
24
$240
960
1,080
$120
4
36
$960
4
28
$320
1,280
1,280
$0
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.