Production Process and Costs
Question 1
Bottom of Form
In competitive markets, individual businesses operate as small sellers in the market. Suppose eBay e-books $4 per unit in a highly competitive market. It produces e-books using capital (which it rents at $ 6 per hour) under a contract for 10 hours of capital services and labor is paid a wage of $30 per hour. Complete the following table and use that information to answer the questions that follow.
|
K
|
L
|
Q
|
MPL
|
APL
|
APK
|
VMPL
|
|
|
10
|
0
|
0
|
|
|
|
|
|
|
10
|
1
|
50
|
|
|
|
|
|
|
10
|
2
|
150
|
|
|
|
|
|
|
10
|
3
|
300
|
|
|
|
|
|
|
10
|
4
|
400
|
|
|
|
|
|
|
10
|
5
|
425
|
|
|
|
|
|
|
10
|
6
|
450
|
|
|
|
|
|
|
10
|
7
|
450
|
|
|
|
|
|
|
10
|
8
|
400
|
|
|
|
|
|
|
10
|
9
|
375
|
|
|
|
|
|
|
10
|
10
|
300
|
|
|
|
|
|
|
10
|
11
|
150
|
|
|
|
|
|
a. Complete the Table above
b. Identify and define the fixed and variable inputs. WHY?
c. What are the firm's fixed costs? WHY?
d. Define variable cost? What is the variable cost of producing 425 units of output? WHY
e. How many units of the variable input should be used to maximize profits? SHOW WORK
f. What are the maximum profits this firm can earn? SHOW WORK
g. What is diminishing marginal returns? Over what range of the variable input usage do increasing marginal returns exist? WHY? A graph may also be useful
h. Define the value of marginal product of labor and then complete its column in the table above.
Question 2: There is no difference between the law of diminishing marginal returns and the law of diminishing marginal rate of technical substitution. True or False. Explain and offer examples to further illustrate your explanation.