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10. The following table summarizes the short-run production function for your firm. Your product sells for $5 per unit, labor costs $5 per unit, and the rental price of capital is $20 per unit. Complete the following table, and then answer the accompanying questions.

(1) (2) (3) (4) (5) (6) (7)
K L Q MPK APK APL VMPK
0 5 0
1 5 10
2 5 30
3 5 60
4 5 80
5 5 90
6 5 95
7 5 95
8 5 90
9 5 80
10 5 60
11 5 30

h. Which inputs are fixed inputs? Which are the variable inputs?
i. How much are your fixed costs?
j. What is the variable cost of producing 20 units of output?
k. How many units of the variable input should be used to maximize profits?
l. What are your maximum profits?
m. Over what range of variable input usage do increasing marginal returns exist?
n. Over what range of variable input usage do decreasing marginal returns exist?
o. Over what range of variable input usage do negative marginal returns exist?

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This solution articulates maximum profits.

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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