Answer the question on the basis of the following marginal product data for resources a and b.The output of these independent resources sells in a purely competitive market at $1 per unit. $\begin{array}{ccc}
\begin{array}{ccc}
\text { Inputs } \
\text { of a } & & \mathrm{MP}_{\mathrm{a}} \
\hline
1 & & 25 \
2 & & 20 \
3 & & 15 \
4 & & 10 \
5 & & 5 \
6 & & 2 \
7 & & 1
\end{array}
\begin{array}{c}
\begin{array}{c}
\text { Inputs } \
\text { of } b
\end{array} & & M P_{b} \
\hline
1 & & 40 \
2 & & 36 \
3 & & 32 \
4 & & 24 \
5 & & 20 \
6 & & 16 \
7 & & 8
\end{array}
\end{array}$ Refer to the given data.Assuming the prices of resources a and b are $5 and $8 respectively,when the firm hires the profit-maximizing combination of resources,its economic profit will be:
A) $170.
B) $76.
C) $145.
D) $138.

Question

Quizplus · Accepted Answer

The profit-maximizing combination of resources is where the marginal product per dollar spent on each resource is equal. In this case, the marginal product per dollar spent on resource a is 5/25 = 0.2, and the marginal product per dollar spent on resource b is 8/40 = 0.2. Therefore, the firm should hire 5 units of resource a and 4 units of resource b. The total cost of these resources is 5 * $5 + 4 * $8 = $52. The total revenue from selling the output is 9 * $1 = $9. Therefore, the economic profit is $9 - $52 = $170.

Answer the Question on the Basis of the Following Marginal