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Suppose a firm is employing two inputs, labor (L) and capital (K) to produce output. The marginal product for each inputs is given below.
Suppose a firm is employing two inputs, labor (L) and capital (K) to produce output. The marginal product for each inputs is given below. Product markets sells its output for $1 and pays factors PL = $8 and PK = $12.
QL MPL QK MPK
1 28 1 18
2 24 2 15
3 20 3 12
4 16 4 6
5 9 5 6
6 4 6 3
7 2 7 2
a. Are the output markets perfect competition? Why?
b. Are the input markets perfect competition? Why?
c. Suppose that this firm is planning to produce 106 units of output. How many units of labor and/or capital will this firm hire? What is the profit at this level of output?
d. What is the profit-maximizing combination of labour (L) and capital (K) for the firm? What is the profit with this combination of L and K?
