Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm.
TABLE 13-1
-Refer to Table 13-1.How many units of this factor of production would the profit-maximizing firm hire if the price of each unit of the factor was $140?
A)11
B)12
C)13
D)14
E)It is not possible to determine with the data given.

Question

Consider the following production and cost schedule for a firm.The first column shows the number of units of a variable factor of production employed by the firm.
  TABLE 13-1
-Refer to Table 13-1.How many units of this factor of production would the profit-maximizing firm hire if the price of each unit of the factor was $140?
A)11 
B)12 
C)13 
D)14 
E)It is not possible to determine with the data given.

Quizplus · Accepted Answer

To determine the profit-maximizing quantity of the variable factor of production, we need to find the level of output where marginal revenue product (MRP) is equal to the price of the factor. In this case, when the factor price is $140, the MRP for 13 units of the factor is $140, which is equal to the factor price. At this level of employment, the firm will hire the factor up to the point where the MRP equals the factor price in order to maximize profits. Thus, the profit-maximizing quantity of the variable factor of production is 13 units.

Consider the Following Production and Cost Schedule for a Firm