Question

The following table summarizes the short-run production function for your firm. Your product sells for $5 per unit, labor costs $5 per unit, and the rental price of capital is $20 per unit. Complete the following table, and then answer the accompanying questions.

(1)	(2)	(3)	(4)	5	6
L	K	Q	MPL	P	VMPK
0	5	0	0	0	0
1	5	10
2	5	30
3	5	60
4	5	80
5	5	90
6	5	95
7	5	95
8	5	90
9	5	80
10	5	60
11	5	30

a. Complete the above Table

b. Which inputs are fixed inputs? Which are the variable inputs?
c. How much are your fixed costs?

Answer 1

Formulas Used :

MPL(Marginal productivity of Labour ) = Change in quantity(Q) / Change in Labour(L)

MPK(Marginal productivity of Capital ) = Change in quantity(Q) / Change in Capital(K)

Output = Quantity produced

Total Input = Total Labour (L) + Total Capital(K)

Value of marginal product of capital = P * Marginal product of capital(MPK)

Ques A)

NOTE : The VMPK is 0 as capital is a fixed factor. The Marginal product of Capital(MPK) would be 0. So price * 0 will be 0

Ques B ) Labour(L) is Variable Input and Capital (K) is fixed input.

Ques C) Fixed Costs = Total capital (K) = Capital units * per unit cost = 5*$20 = $100