A firm’s product sells for $4 per unit

A firm’s product sells for $4 per unit in a highly competitive market. The firm produces output using capital (which it rents at $25 per hour) and labor (which is paid a wage of $30 per hour under a contract for 20 hours of labor services). Complete the following table and use that information to answer the questions that follow.

Instruction: Round your answers for Average Product of Capital and Average Product of Labor to 2 decimal places.

K L Q MPK APK APL VMPK
0 20 0
1 20 50
2 20 150
3 20 300
4 20 400
5 20 450
6 20 475
7 20 475
8 20 450
9 20 400
10 20 300
11 20 150

a. Identify the fixed and variable inputs.

Capital and labor are variable inputs.

Labor is the fixed input and capital is the variable input.

Capital and labor are fixed inputs.

Capital is the fixed input and labor is the variable input.

b. What are the firm’s fixed costs?

$

c. What is the variable cost of producing 475 units of output?

$

d. How many units of the variable input should be used to maximize profits?

e. What are the maximum profits this firm can earn?

$

f. Over what range of the variable input usage do increasing marginal returns exist?

From to

g. Over what range of the variable input usage do decreasing marginal returns exist?

From to

h. Over what range of input usage do negative marignal returns exist?