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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.