A Firm Has the Following Short Run Total Product Curve

question 36

Essay

A firm has the following short run total product curve:

where labor, L, is the only variable input and TP_L is the total output produced per day.
a. If the firm is operating in the short run with K fixed at K = 5, the average price for a unit of its output is $5.00, and average raw materials cost per unit is $3.00, what is the equation for the marginal revenue product of input L?
b. If the firm must pay a market-determined wage rate of $90.00 per day for each unit of labor hired, how much labor should it employ?
c. How many units of output will be produced per day? Fractional units are not permitted - round UP to the next whole unit.)
d. If the firm's daily fixed costs total $118.00, what will be its total profit per day?

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Definitions:

Direct Labor

The cost of wages for employees who are directly involved in the production of goods or services.

Direct Materials

Refers to the raw materials that are directly incorporated into a finished product during the manufacturing process.

Overhead Costs

Expenses related to the day-to-day running of a business that are not directly linked to a specific product or service, such as rent, utilities, and administrative expenses.

Overhead Costs

Expenses related to the day-to-day running of a business that can't be directly linked to any specific product or service.