Problem:
You own a small manufacturing company that makes wheel locks for automobiles that you sell to the major automakers. A company recently completed a study of your production process, and a part of the results is displayed in the attached file. As can be seen in the file, you own and employ 5 units of capital in your production process. In addition, capital costs you $5/unit, labor costs $50/unit, and you sell your wheel locks for $5/unit. To keep the analysis manageable, assume your only fixed costs are capital, and your only variable costs are labor.
- What goes in the last 2 columns of the table.
- How many units of labor should you employ? Explain.
- How many units of output should you produce to maximize your profits? Explain.
- If you do maximize profits, how much is your profit or loss? Why?
| Labor |
Capital |
Output |
Marginal Product of Labor MPL |
Value Marginal Product of Labor VMPL |
| 0 |
5 |
0 |
--- |
|
| 1 |
5 |
9 |
|
|
| 2 |
5 |
30 |
|
|
| 3 |
5 |
60 |
|
|
| 4 |
5 |
80 |
|
|
| 5 |
5 |
90 |
|
|
| 6 |
5 |
95 |
|
|
| 7 |
5 |
95 |
|
|
| 8 |
5 |
90 |
|
|
| 9 |
5 |
80 |
|
|
| 10 |
5 |
60 |
|
|