# Question: In the short run a perfectly competitive firm produces output

In the short run, a perfectly competitive firm produces output using capital services (a fixed input) and labor services (a variable input). At its profit-maximizing level of output, the marginal product of labor is equal to the average product of labor.

a. What is the relationship between this firm’s average variable cost and its marginal cost? Explain.

b. If the firm has 10 units of capital and the rental price of each unit is $4/ day, what will be the firm’s profit? Should it remain open in the short run?

a. What is the relationship between this firm’s average variable cost and its marginal cost? Explain.

b. If the firm has 10 units of capital and the rental price of each unit is $4/ day, what will be the firm’s profit? Should it remain open in the short run?

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