In the table below are the marginal product and marginal revenue product schedul
ID: 1197580 • Letter: I
Question
In the table below are the marginal product and marginal revenue product schedules for resource A and resource B. Bothe resources are variable and are employed in purely competitive market. The price of A is $1 and the price of B is $2
Quantity of A MP A MRP A Quantity of B MP B MRP B
1 20 5 1 20 5
2 16 4 2 18 4.50
3 12 3 3 16 4
4 10 2.5 4 12 3
5 8 2 5 8 2
6 4 1 6 6 1.5
7 2 .50 7 4 1
a) what is the least cost combiantion of resources A and B that would enable the firm to product 120 uints of output?
b) what is the profit maximizing combination of A and B?
c) What is total output and profit when the frim is employing the profit maximizing combination of A and B?
Explanation / Answer
Least cost combination would be when,
Pa/Pb = MPb/MPa
MPb/MPa = 1/2
This can happen when 1) 2 units of A and 5 units of B Cost = 12
2) 3 units of A and 6 units of B Cost = 15
3) 5 units of A and 7 units of B Cost = 19
Least cost combination is 2 units of A and 5 units of B