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Labor and Capital, Costs

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5) A manager hires labor and rents capital equipment in a very competitive market. Currently the wage rate is $6 per hour and capital is rented at $12 per hour. If the marginal product of labor is 50 units of output per hour and the marginal product of capital is 75 units of output per hour, is the firm using the cost-minimizing combination of labor and capital? If not, should the firm increase or decrease the amount of capital used in its production process?

6) A firm's fixed costs of 0 units of output and its average total cost of producing different output levels are summarized in the table below. Complete the table to find the fixed cost, variable cost, total cost, average fixed cost, average variable cost, and marginal cost at all relevant levels of output.

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Two questions are addressed, regarding marginal product of labor and finding fixed, variable, total, average fixed, average variable, and marginal costs. Step-by step solutions are provided. Included is an Excel file showing all formulas used in the table.

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5) A manager hires labor and rents capital equipment in a very competitive market. Currently the wage rate is $6 per hour and capital is rented at $12 per hour. If the marginal product of labor is 50 units of output per hour and the marginal product of capital is 75 units of output per hour, is the firm ...

Solution provided by:
J Pye, MSc
Education
  • MSc, California State Polytechnic University, Pomona
  • MBA, University of California, Riverside
  • BSc, California State Polytechnic University, Pomona
  • BSc, California State Polytechnic University, Pomona
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