# Solve: Maximum Level of Output

The table below presents estimates of the maximum levels of output possible with various combination of two inputs.

Capital (K)

5 11 25 37 47 51

4 10 23 33 41 44

3 8 18 25 30 34

2 5 11 16 20 22

1 1 4 8 10 11

1 2 3 4 5

Labor (L)

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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#### Solution Preview

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.