# PROFIT-MAXIMIZING INPUT USAGE

Consider a
price-taking firm that has total fixed cost of \$50 and faces a
market-determined price of \$2 per unit for its output. The wage rate is \$10 per
unit of labor, the only variable input. Using the following table, answer the
questions below.

(1).

(2)

(3)

(4)

(5)

(6)

Units of
labor

Output

Marginal
product

Marginal
revenue product

Marginal
cost

Profit

1

5

_______

_______

_______

_______

2

15

_______

_______

_______

_______

3

30

_______

_______

_______

_______

4

50

_______

_______

_______

_______

5

65

_______

_______

_______

_______

6

77

_______

_______

_______

_______

7

86

_______

_______

_______

_______

8

94

_______

_______

_______

_______

9

98

_______

_______

_______

_______

10

96

_______

_______

_______

_______

a. Fill in the
blanks in column 3 of the table by computing the marginal product of labor for
each level of labor usage.
b. Fill in the
blanks in column 4 of the table by computing the marginal revenue product for
each level of labor usage.
c. How much
labor should the manager hire in order to maximize profit? Why?
d. Fill in the
blanks in column 5 of the table by computing marginal cost.
e. How many
units of output should the manager produce in order to maximize profit? Why?
f. Fill in the
blanks in column 6 with the profit earned at each level of labor usage.
g. Do your
answers to partscandemaximize profit? Does it matter
whether the manager chooses labor usage or chooses output in order to maximize
profit? Why?
h. How much
labor should the manager hire when the wage rate is \$20? How much profit is
earned? Is marginal product greater or less than average product at this level
of labor usage? Why does it matter?

Consider a
price-taking firm that has total fixed cost of \$50 and faces a
market-determined price of \$2 per unit for its output. The wage rate is \$10 per
unit of labor, the only variable input. Using the following table, answer the
questions below.

(1).

(2)

(3)

(4)

(5)

(6)

Units of
labor

Output

Marginal
product

Marginal
revenue product

Marginal
cost

Profit

1

5

_______

_______

_______

_______

2

15

_______

_______

_______

_______

3

30

_______

_______

_______

_______

4

50

_______

_______

_______

_______

5

65

_______

_______

_______

_______

6

77

_______

_______

_______

_______

7

86

_______

_______

_______

_______

8

94

_______

_______

_______

_______

9

98

_______

_______

_______

_______

10

96

_______

_______

_______

_______

a. Fill in the
blanks in column 3 of the table by computing the marginal product of labor for
each level of labor usage.
b. Fill in the
blanks in column 4 of the table by computing the marginal revenue product for
each level of labor usage.
c. How much
labor should the manager hire in order to maximize profit? Why?
d. Fill in the
blanks in column 5 of the table by computing marginal cost.
e. How many
units of output should the manager produce in order to maximize profit? Why?
f. Fill in the
blanks in column 6 with the profit earned at each level of labor usage.
g. Do your
answers to partscandemaximize profit? Does it matter
whether the manager chooses labor usage or chooses output in order to maximize
profit? Why?
h. How much
labor should the manager hire when the wage rate is \$20? How much profit is
earned? Is marginal product greater or less than average product at this level
of labor usage? Why does it matter?

Consider a
price-taking firm that has total fixed cost of \$50 and faces a
market-determined price of \$2 per unit for its output. The wage rate is \$10 per
unit of labor, the only variable input. Using the following table, answer the
questions below.

(1).

(2)

(3)

(4)

(5)

(6)

Units of
labor

Output

Marginal
product

Marginal
revenue product

Marginal
cost

Profit

1

5

_______

_______

_______

_______

2

15

_______

_______

_______

_______

3

30

_______

_______

_______

_______

4

50

_______

_______

_______

_______

5

65

_______

_______

_______

_______

6

77

_______

_______

_______

_______

7

86

_______

_______

_______

_______

8

94

_______

_______

_______

_______

9

98

_______

_______

_______

_______

10

96

_______

_______

_______

_______

a. Fill in the
blanks in column 3 of the table by computing the marginal product of labor for
each level of labor usage.
b. Fill in the
blanks in column 4 of the table by computing the marginal revenue product for
each level of labor usage.
c. How much
labor should the manager hire in order to maximize profit? Why?
d. Fill in the
blanks in column 5 of the table by computing marginal cost.
e. How many
units of output should the manager produce in order to maximize profit? Why?
f. Fill in the
blanks in column 6 with the profit earned at each level of labor usage.
g. Do your
answers to partscandemaximize profit? Does it matter
whether the manager chooses labor usage or chooses output in order to maximize
profit? Why?
h. How much
labor should the manager hire when the wage rate is \$20? How much profit is
earned? Is marginal product greater or less than average product at this level
of labor usage? Why does it matter?

Consider a
price-taking firm that has total fixed cost of \$50 and faces a
market-determined price of \$2 per unit for its output. The wage rate is \$10 per
unit of labor, the only variable input. Using the following table, answer the
questions below.

(1).

(2)

(3)

(4)

(5)

(6)

Units of
labor

Output

Marginal
product

Marginal
revenue product

Marginal
cost

Profit

1

5

_______

_______

_______

_______

2

15

_______

_______

_______

_______

3

30

_______

_______

_______

_______

4

50

_______

_______

_______

_______

5

65

_______

_______

_______

_______

6

77

_______

_______

_______

_______

7

86

_______

_______

_______

_______

8

94

_______

_______

_______

_______

9

98

_______

_______

_______

_______

10

96

_______

_______

_______

_______

a. Fill in the
blanks in column 3 of the table by computing the marginal product of labor for
each level of labor usage.
b. Fill in the
blanks in column 4 of the table by computing the marginal revenue product for
each level of labor usage.
c. How much
labor should the manager hire in order to maximize profit? Why?
d. Fill in the
blanks in column 5 of the table by computing marginal cost.
e. How many
units of output should the manager produce in order to maximize profit? Why?
f. Fill in the
blanks in column 6 with the profit earned at each level of labor usage.
g. Do your
answers to partscandemaximize profit? Does it matter
whether the manager chooses labor usage or chooses output in order to maximize
profit? Why?
h. How much
labor should the manager hire when the wage rate is \$20? How much profit is
earned? Is marginal product greater or less than average product at this level
of labor usage? Why does it matter?

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