Question

Under competition, a firm sells printer ink for $2 per unit. The firm produces printer ink...

Under competition, a firm sells printer ink for $2 per unit. The firm produces printer ink using capital (which it rents at $ 20 per hour) and labor (which is paid a wage of $ 25 per hour under a contract for 10 hours of labor services. Complete the following table and use that information to answer the questions that follow.

K L Q

MPk

APk APl VMPk

0

10

0

1

10

50

2

10

150

3

10

300

4

10

400

5

10

450

6

10

475

7

10

475

8

10

450

9

10

400

10

10

300

11

10

150

Complete the Table above

Define firm’s fixed costs. Next, what is Firm’s FC in the Table above. Why?

Define the Firm’s Variable Costs. Next, what is the VC in the Table above?

Determine the Firm’s Total Cost of producing 9 units of output

What is the variable cost of producing 475 units of output? WHY

How many units of the variable input should be used to maximize profits? SHOW WORK

Define profit? What are the maximum profits this firm can earn? SHOW WORK

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

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.

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