Question

A firm produces at an output level where the marginal products of labor and capital are both 25 units. Suppose that the rental price of labor and capital are $12.50 and $25 respectively. Is the firm maximizing profit? If the firm is not producing efficiently, how might it do so? If the output produced can be sold at a price of $2, what is the value marginal product of labor? If the output produced can be sold at a price of $2, what is the value marginal product of capital?

Answer #1

Is the firm maximizing profit?

no.

If the firm is not producing efficiently, how might it do so?

The firm is not maximizing profit as the profit is maximum where marginal product of per dollar of labor is equal but here the MPL/w=25/12.5=1 and MPK/r=1

so the firm should increase the quantity of labor and decrease capital to produce maximum.

If the output produced can be sold at a price of $2, what is the value marginal product of labor?

VMPL=MPL*price=25*2=50

If the output produced can be sold at a price of $2, what is the value marginal product of capital?

VMPK=MPK*P=25*2=50

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