Labor (Price $21) Capital (Price = $30) (2) Total (3) (4) (5)Margi(1\') Units of

Question

Labor (Price $21) Capital (Price = $30) (2) Total (3) (4) (5)Margi(1') Units of Total Marginal Total MRP Units of ProductMargitanal Resour(Output) naRevenu Revenue Resour Produc Product Revenu $33 ce (L) (Mp) Produ e ct (Mp) product ce (K)t (Output $4x2 S4x2(MRP)S3 $0 $36 $27 $68$24 $96$21 $120 $90 $140 $15 $144 $3 0 24. 46 $96$72 $184 $66 $264$60 $336 $54 $400 $48 $440 $30 24 17 24 30 35 36 20 6 84 100 110 18 6 10 6 735 1$140 $37104 6 $416 $312 Given the prices of capital and labor, select the profit maximizing combination of capital and labor. Explain your methods in detail

Explanation / Answer

Price of the factor of production should be set such that it is equal to the Marginal revenue product.Factor market equilibrium condition:P=MRP

For labour

Price of labour=$21.

P=MRP at 3 units of labour

Fot capital

Price of capital=$30

P=MRP at 6 units of capital.

Therefore profit maximizing condition:(3L,6K)

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