Written Assignment 4

Written Assignment 4

Answer all of the following questions. Title your assignment "Written Assignment 3," unless your mentor directs otherwise. This assignment covers text chapters 15 through 22.

1. Labor is the only input used by a perfectly competitive firm. It hires workers for $50 a day. The firm's production function is as shown in the following Table. (The table will open in a new window.) Each unit of output sells for $10.

a. Complete the table to show the marginal product of labor and the value of the marginal product of labor.

A)

Days of Labor | Units of Daily Output | Marginal Product of Labor | Value of the Marginal Product of Labor |

0 | 0 | | |

1 | 7 | 7 | $70 |

2 | 13 | 6 | $60 |

3 | 19 | 6 | $60 |

4 | 25 | 6 | $60 |

5 | 28 | 3 | $30 |

6 | 29 | 1 | $10 |

b. How many days of labor should the firm hire? Explain.

A) 5 days, 5 days of labor would cost 250 but would generate 280 leaving a profit of 30.

2. Describe the factors of production. What are the returns to these factors (their price)? Describe the marginal products of each factor and how the value of the marginal product of each factor is determined.

A) The factors of production include labor, land and capital since these things are inputs needed to produce goods or services. Labor relates to employees and time, land is physical space, and capital is investments in equipment, tools, and other resources. One major return is the Marginal Revenue Product.   That is how much extra revenue stands to be generated from additional investments in factors of production.   Specifically labor’s returns can be measured in the marginal product of labor.  Land may see a return when it’s paid off and/or when equity is actually building.  Capital sees a return in improving efficiency, saving time, and being durable and practical. As long as the firm or venture remain competitive and concentrate on maximizing profit then each of the factors of production...