A purely competitive firm in the factor and product markets sells its output for $1 and pays factors P_L= $4 and P_C= $3. What is the profit-maximizing combination of L and C for the firm?
$\begin{array} { | c | c | c | c | } \hline \text { Q. } & \text { MPL } & \text { QC } & \text { MPC } \\\hline 1 & 28 & 1 & 18 \\\hline 2 & 24 & 2 & 15 \\\hline 3 & 20 & 3 & 12 \\\hline 4 & 16 & 4 & 9 \\\hline 5 & 9 & 5 & 6 \\\hline 6 & 4 & 6 & 3 \\\hline 7 & 2 & 7 & 2 \\\hline 8 & 1 & 8 & 1.5 \\\hline 9 & 0.5 & 9 & 1 \\\hline\end{array}$

Question

A purely competitive firm in the factor and product markets sells its output for $1 and pays factors P_L= $4 and P_C= $3. What is the profit-maximizing combination of L and C for the firm?

\begin{array} { | c | c | c | c | } \hline \text { Q. } & \text { MPL } & \text { QC } & \text { MPC } \\\hline 1 & 28 & 1 & 18 \\\hline 2 & 24 & 2 & 15 \\\hline 3 & 20 & 3 & 12 \\\hline 4 & 16 & 4 & 9 \\\hline 5 & 9 & 5 & 6 \\\hline 6 & 4 & 6 & 3 \\\hline 7 & 2 & 7 & 2 \\\hline 8 & 1 & 8 & 1.5 \\\hline 9 & 0.5 & 9 & 1 \\\hline\end{array}

Quizplus · Accepted Answer

The profit-maximizing condition is where the marginal product per dollar spent on each factor is equal. For L: MPL/PL = 1, and for C: MPC/PC = 1. At 6 of L and 6 of C, MPL/PL = 4/4 = 1 and MPC/PC = 3/3 = 1, satisfying the condition.

A Purely Competitive Firm in the Factor and Product Markets