Assume that a unit of output sells for $2 and that the firm currently employs two units of capital (K = 2).:

(i) What is the marginal product of labor when L = 4?

(ii) What is the average product of labor when L = 4?

(iii) What is the marginal revenue product of labor when L = 4?

(iv) If the wage rate of labor is $10, how many units of labor should the firm hire and how many units of output should it produce?

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Please refer to the attached file for better clarity of tables and the rest of the solution.

(i) What is the marginal product of labor when L = 4?
Total output for K=2 and L=3 is 16 units
Total output for K=2 and L=4 is 20 units
Marginal Product of Labor when K=4 is given by
MPL=change in output/Change in labor=(20-16)/(4-3)=4 units

(ii) What is the average product ...

Solution Summary

This solution describes the steps to calculate average product, marginal product and marginal revenue product at a given combination of labor and capital. It also determines the number of units of labor that it should hire for a given level of wage rate and capital employed. A Word document is also attached as part of the solution.

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Please view attachment to see the diagram for this question.

Attached is the word document.
1. Solve the problem.
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2. Solve.
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