The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10.

-Refer to the table above.If the rental price of machines is $100 per day,how many machines should the firm rent to maximize profits?

Question

The following table shows the output of chairs produced by a firm at different units of capital rented. The price per chair is $10.
 
-Refer to the table above.If the rental price of machines is $100 per day,how many machines should the firm rent to maximize profits?

Quizplus · Accepted Answer

To find the number of machines that should be rented to maximize profits, we need to compare the marginal revenue product (MRP) to the rental cost of machines (MRC). MRP is the extra revenue generated by an additional unit of capital (in this case, an additional machine). From the table, we can see that the MRP for the first four machines is greater than the rental cost of $100, but the MRP for the fifth machine is only $50. Therefore, it is not profitable to rent more than four machines. The maximum revenue is achieved by renting four machines, which produce 60 chairs and generate $600 in revenue. The total cost of renting four machines is $400, so the profit is $200.

The Following Table Shows the Output of Chairs Produced by a Firm