# Managerial Economics

Pages: 3 (673 words) Published: April 27, 2012
Gus Bonilla
MBA 217
Managerial Economics
Individual Assignment

2) A firm’s product sells for \$2 per unit in a highly competitive market. The firm produces output using capital (which it rents at \$75 per hour) and labor (which is paid a wage of \$15 per hour under a contract for 20 hours of labor services). Complete the following table and use that information to answer the questions that follow.

K| L| O | MPK| APK| APL| VMPK|
0| 20| 0| -| -| -| -|
1| 20| 50| 50| 50| 2.50| 100|
2| 20| 150| 100| 75| 7.50| 200|
3| 20| 300| 150| 100| 15| 300|
4| 20| 400| 100| 100| 20| 200|
5| 20| 450| 50| 90| 22.50| 100|
6| 20| 475| 25| 79.17| 23.75| 50|
7| 20| 475| 0| 67.86| 23.75| 0|
8| 20| 450| -25| 56.25| 22.50| -50|
9| 20| 400| -50| 44.44| 20| -100|
10| 20| 300| -100| 30| 15| -150|
11| 20| 150| -150| 13.64| 7.50| -300|

rate x K is the cost incurred for employing capital.
rate= \$75/ hr.
wage x L= is the cost incurred for labor units.
15 x20= 300 units.
Rate K is the variable cost component
Wage L is the fixed cost component.
TC= r K+ w L
MC= (TC2-TC1)/ (Q2-Q1)

a. Identify the fixed and variable inputs.
The firms w x L is fixed through out the production process, so \$300 is the fixed cost. Firms, cost of capital r x K is the variable cost. It is variable through out the production process. Gus Bonilla

MBA 217
Managerial Economics
Individual Assignment

b. What are the firm’s fixed costs?
Cost of labor is the Firms fixed costs, it is equal to \$300

c. What is the variable cost of producing 475 units of output? The variable cost are \$75 x 6 = \$450

d. How many units of the variable input should be used to maximize profits?

Profit maximization is achieved when MR=MC.
Since the firm runs in a competitive market MR=Price= \$2.
MC=MR, achieved in between 450 and 475 units of out put, and minimum ATC is achieved at 450 units. So,...