LI A firm\'s output depends on how much capital (K) it has, according to the equ

Question

LI A firm's output depends on how much capital (K) it has, according to the equation: Y 20K K2 The real interest rate is 1% per year, the depreciation rate of capital is 14% per year and the price of a unit of capital is $86.66, and each unit of output sells for $1. Table#1 below shows the firm's production function schedule. Table#1 Capital Output MPK 19 2 36 51 75 6 84 (a) (3 points) Fill up the blank column of "MPK" (b) (2 points) Using your result of part (a) with given information, how many units of capital does the firm desire for maximizing its profit?

Explanation / Answer

a) marginal product of capital is equal to = change in output /change in capital .

b) A firm produce 6 units of capital to maximize its profits

capital output Marginal product of capital 0 0 - 1 19 19 2 36 17 3 51 15 4 64 13 5 75 11 6 84 9

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