Consider a price taking firm that has total fixed cost of $50 and faces a market determined price of $2 per unit for its output. The wage rate is $10 per unit of labor, the only variable input. Using the following table, answer the questions below

a. How much labor should the manager hire in order to maximize profit? Why?
b. How many units of output should the manage produce in order to maximize profit? Why?
c. Do your answers to parts c and e maximize profit? Does it matter whether the manager chooses labor usage or chooses output in order to maximize profit? Why?
d. How much labor should the manager hire when the wage rate is $20? How much profit is earned? Is marginal product greater or less than average product at this level of labor usage? Why does it matter?

Transcribed Image Text:

1 Units of labor 3. Marginal Product 4. Marginal revenue product 5 Marginal cost 2 Output 6 Profit 2 15 3 4 5 6 86 8 9 98 10