Question

Marvin’s Milk Farm produces milk and sells it in a perfectly competitive market at $3 per bottle. The following table shows Marvin's weekly total and marginal product schedules, using labor and capital. Assume that labor and capital may be used independently; that is, one is not needed for the other factor to be productive. Therefore, the total amount of milk that Marvin's produces is obtained by adding together the amount of milk produced by labor and the amount of milk produced by capital. The table also shows total revenue and marginal revenue products (MRP) of labor and capital. Finally, assume that Marvin's Milk Farm is a factor price taker in the labor and capital in markets. Labor costs $36 per week, and capital costs $72 per week.

Labor	Total Product	Marginal Product	Total Revenue	MRP of Labor
(Number of workers)	(Bottles)	(Bottles)	(Dollars)	(Dollars)
0	0
1	18	18	54	54
2	34	16	102	48
3	46	12	138	36
4	56	10	168	30

	Total Product	Marginal Product	Total Revenue	MRP of Labor
Capital	(Bottles)	(Bottles)	(Dollars)	(Dollars)
0	0
1	24	24	72	72
2	40	16	120	48
3	52	12	156	36
4	58	6	174	18

If Marvin’s Milk Farm wants to produce 70 bottles of milk per week, the least-cost combination of labor and capital is (1, 2, 3, or 4 units) of labor and (1, 2, 3, or 4 units) of capital.

The profit-maximizing combination of resources is (1, 2, 3, or 4 units) of labor and (1, 2, 3, or 4 units) of capital.

The profit-maximizing combination contains (the same amounts of labor and capital as, fewer units of labor and capital than, or more units of labor and capital than) the least-cost combination to produce 70 bottles of milk.

No essays or confusing explanations, please. Just answers.

Answer 1

If Marvin's milk farm wants to produce 70 bottles of milk per week he can use the following combinations:

3 units of labor and 1 unit of capital

3 units of capital and 1 unit of labor

Since labor costs $36 per week and capital costs $72 per week therefore the least cost combination is combination 1 i.e. 3 units of labor and 1 unit of capital.

In order to obtain maximum profits, marvin milk firm hires only those workers whose marginal revenue product exceed or equal to wage. Here, Given that wage of the labor is $36 per week Marvin will hire either 1 unit of capital or 2 units of capital.

The only choice he has then is 1 unit of capital and 3 units of labor for profit maimization.

If Marvin wants to produce 70 bottles of milk per week then Marvin will use 1 unit of capital and 3 units of labor.

The profit maximizing combination contains the same amounts of labor and capital as the least cost combination to produce 70 bottles of milk.