Smiling Cow Dairy can sell all the milk it wants for $4 a gallon, and it can ren

Question

Smiling Cow Dairy can sell all the milk it wants for $4 a gallon, and it can rent all the robots it wants to milk the cows at a capital rental price of $100 a day. if faces the following production schedule:

Number of Robots Total Product
_____________________________________________________
0 0 gallons
1 50
2 85
3 115
4 140
5 150
6 155

a) In what kind of market structure does the firm sell its output? How can you tell?

b) In what kind of market structure does the firm rent robots? How can you tell?

c) Calculate the marginal product and the value of the marginal product for each additionals robot.

d) How many robots should the firm rent? Explain.

Explanation / Answer

a and b are perfectly competitive markets, since it can sell and rent items at a fixed price regardless of quantity. c) 1 50, 200 2 35, 140 3 30, 120 4) 25, 100 5) 10, 40 6) 5, 20 d) it should rent four robots because that's where the value of the marginal product equals the price.

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