1. Assume that a purely competitive firm uses two resources,labor (L)and capital (C), to produce aproduct.The market price of this product is $1.00.The Marginal Product (MP) and prices of the resources (Pl) and (Pc)are shown in the following four situations below:

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MPlMPcPlPcMRPlMRPc

I30203040____________

II20201010____________

III10151015____________

IV3040105____________

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a. Calculate the marginal revenue product(MRP) oflabor and capital in four situations and put in the above table.

b. Which situation would the firm be maximizing its profit? _______

1. Suppose a firm expects that a $15 million expenditure on R&D will result in an improved product which will increase its revenue by a total of $27 million 1 year from now.The firm also estimated the production cost of the improved product would be $25 million.

a. What is the expected rate of return on this R&D expenditure?________

b. Suppose the firm can get a bank loan at 10% to finance its $15 million, will the firm undertake theproject? ____________Explain.________________________________

c. Now suppose the interest rate of the loan rises to 15%, will this interest rate change the firm's R&D decision? ___________ Explain__________________________________

d. What is the highest interest rate of the loan that this firm will undertake the project?____

1. Resources are used in production, and resources' prices are the cost of production.

a. Resources demand is a derived demand, this demand derived from ______________

b. The rule of employing labor required: MRP = Wage of labor

MRP depends on 1________ and 2.______.

In perfect competition, if the price of X is $4, and the marginal product of X is 5.

The MRP is____.

c. VMP is equal to MRP in perfect competition because___is equal to ______.

4. The labor supply table below is for a firm of hiring labor competitively and selling its product in a competitive market for $2 per unit..

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Units of Labor123456

Total product173143536065

MRP in perfectly competitive market__________________

MRP in imperfectly competitive market _______________ ___

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a.Fill in the MRP in perfectly competitive market.

How many workers will the firm hire if the going wage rate is$23?_______

Explain why the firm will nothire a larger or smaller number of workers at this

wage rate?__________________________________

b. Now assume that it is selling in an imperfectly competitive market and that, it can sell 17 units at $2.2 per unit, it must lower product price by 5 cents in order to sell the marginal product of each successive worker. Fill in the MRP in imperfectly competitive market.

How many workers will the firm hire if the going wage rate is $23? _____

c. Compare the factor demand curves of the firm when it is selling in a perfectly competitive market and imperfectly competitive market, which curve is more elastic? Explain:__________