Use the data in the table below to answer the following questions about a firm.
Units of Units of Total Marginal Output
Input X Input Y Product Product of X Price
0 25 0 $10
1 25 2 10
2 25 7 10
3 25 14 10
4 25 20 10
5 25 23 10
6 25 24 10
a. Complete the table by calculating the marginal product of input X.
b. Compute the marginal revenue produce of input X.
c. If the price of input X were $30 per unit, how many units should the firm use per unit of time to maximize profit? Explain why profit is maximized.
ANSWER
a. The MPX values are: 2, 5, 7, 6, 3, 1
b. MRPX = MPX ∙ MRQ = 20, 50, 70, 60, 30, 10
c. Equate ME to MRP to get 5 units of input. Profit is maximized because the marginal expenditure for the last unit of X hired just equals the marginal revenue generated. Also MRPX is decreasing as more X is hired; this is associated with a maximum.
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