# Is this correct ? . Over what range of the variable input usage do w marginal returns exist? 3 to 11 units The marginal return on capital decreases when the

Is this correct ? . Over what range of the variable input usage do w marginal returns exist? 3 to 11 units
The marginal return on capital decreases when the ﬁrm is in second stage of production
and its marginal product of variable input continues to fall. Over what range of input usage do negative marginal returns exist?
7 to 11 units Marginal return on capital turns negative when the ﬁrm is in third stage of production and
its marginal product of variable input becomes negative. 388888888888 0
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I —o—o LDMHOIU’I-hUJMI-io I—II—I
HD | q MP AP AP VMP 20 0 20 50 50 50 2.5 200
20 150 100 75 7.5 400
20 300 150 100 15 600
20 400 100 100 20 400
20 450 50 90 22.5 200
20 475 25 79.17 23.75 100
20 475 0 67.86 23.75 0
20 450 -25 56.25 22.5 -100
20 400 -50 44.44 20 -200
20 300 -100 30 15 -400
20 150 -150 13.64 7.5 -600 CHAPTER 5 HOMEWORK
You should show detailed calculations/processes and explanations. Answer itself is NOT
sufficient.
2. A firm’s product sells for \$4 per unit in a highly competitive market. The firm produces
output using capital (which it rents at \$25 per hour) and labor (which is paid a wage of \$30 per
hour under a contract for 20 hours of labor services). Complete the following table and use that
information to answer these questions.
a. Identify the fixed and variable inputs.
. Labor is the fixed input – labor is fixed under a contract for 20 hours of labor
services
. Capital is the variable input – input since capital is changing.
b. are the firm’s fixed costs?
labor unit * wage
. \$30x 20hrs = \$600 total fixed cost
c. is the variable cost of producing 475 units of output?
. 6x \$25 =150
d. How many units of the variable input should be used to maximize profits?
6 units
Variable input should be used up to a level where the price of input is equal to the
marginal product of input.
e. are the maximum profits this firm can earn?
. 4×475-(20×30+6×25) = \$1,150
f. Over what range of the variable input usage do increasing marginal returns exist?
0 to 3 units
.
Since marginal capital increases in the first stage of production, MPk is increasing
from units 0 to 3.

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