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Profitable firm, Diminishing Returns

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1) Consider a firm that uses capital and labor as inputs and sells $5,000 units of output per year at the going market price of $10. Also assume that total labor costs to the firm are $45,000 annually. Assume further that the total capital stock of the firm is currently worth $100,000 that the return avaiable to investors with comparable risks is 10% annually and that there is no depreciation. Is this a profitable firm ? Explain.

4) The following table gives total output or total product as a function of labor units used:

Labor Total output

0 0
1 5
2 9
3 12
4 14
5 15

Does the table indicate a situtation of diminshing returns? Explain

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Answers questions on profitability of a firm and law of diminishing returns.

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