Suppose the productivity of capital and labor are as shown in the table on the next page. The output of these resources sells in a purely competitive market for $1 per unit. Both capital and labor are hired under purely competitive conditions at $3 and $1, respectively. LO5

a. What is the least-cost combination of labor and capital the firm should employ in producing 80 units of output?

Explain.

b. What is the profit-maximizing combination of labor and capital the firm should use? Explain. What is the resulting level of output? What is the economic profit? Is this the least costly way of producing the profit-maximizing output?

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Marginal Units of Labor Total Product Marginal Product Total Revenue Product Price Revenue Product 0 0 $2 $ $ 17 2 2 31 2 3 43 2 4 53 2 5 60 2 6 65 2