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Managerial Econ: Marginal Revenue Cost of Labor/Price Elasticity

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7. Problem-solving question: Use the following data for a firm's output at various levels of employment (L) to calculate: a) its marginal physical product of labor (MPPL) schedule; (b) its (MPPL/MRCL) schedule, given a fixed wage (W = MRCL) of $25 per hour per worker. (c) Assuming that capital (K) is held constant at 2 machines and MPPK/MRCK = 10, what is the least-cost input-combination of labor and capital and how much output is produced with that set of resources?

Number of Workers (L) Output (Q)
1 100
2 300
3 600
4 850
5 1000
6 1100

8. Problem-solving question: Use the following data for a perfectly competitive firm and the profit-maximizing input-combination rule to identify how many workers the firm will employ to maximize profits.

Number of Workers (L) MRPL MRCL
1 $200 $30
2 150 30
3 125 30
4 100 30
5 75 30
6 50 30
7 30 30
8 10 30

9. Problem-solving question: Use the following data on a firm's total cost schedules to calculate its average variable cost, average fixed cost, average total cost, and marginal cost schedules.

Output Total Cost Total Variable Cost Total Fixed Cost
1 $2075.00 $ 75.00 $2000.00
2 2140.00 140.00 2000.00
3 2180.00 180.00 2000.00
4 2280.00 280.00 2000.00
5 2400.00 400.00 2000.00

10. Problem-solving exercises: (a) Use the arc-approximation formula to calculate the price-elasticity of demand coefficient of a firm's product demand between the (quantity, price) points of (100, $20) and (300, $10). (b) Calculate the cross-price elasticity of demand coefficient of a firm's product X, given that a 5% increase in the price of its close substitute, product Y, causes the quantity demand of product X to increase by 10%. c) Calculate the income-elasticity of demand coefficient for a product for which a 4% increase in consumers' income will increase the quantity demanded by 6%.

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Solution Summary

This solution provides detailed answers to 4 common managerial economics exam questions:

1. Using Marginal Revenue Product and Marginal Revenue Cost to determine the optimal combination of inputs.
2. Determining the number of workers a firm will hire to maximize profits.
3. Calculating a firm's AVC, AFC, ATC and MC
4. Calculating arc elasticity, cross-price elasticity, and income elasticity.

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