a)
The marginal revenue product of capital of the 2ndunit of the product capital.
a)
Answer to Problem 1FRQ
The marginal revenue product of 2nd unit of capital is $250.
Explanation of Solution
As the rental rate for capital is $100 per unit and the price of the product is $10, the table would represent the following data:
Q (capital) | Output | Marginal product | MRP at $10 |
0 | 0 | 0 | 0 |
1 | 30 | 30 | 300 |
2 | 55 | 25 | 250 |
3 | 70 | 15 | 150 |
4 | 78 | 8 | 80 |
5 | 85 | 7 | 70 |
6 | 89 | 4 | 40 |
It is calculated as:
Therefore, the marginal revenue product of 2nd unit of capital is $250.
Introduction: Marginal revenue is the earning or benefit which is obtained by using an additional unit of the product or factor of production.
Capital is an asset to the firm which generates value or advantage and this is also the factor of production for any firm.
b)
Whether the firm will employ the 2nd unit of capital.
b)
Explanation of Solution
Q (capital) | Output | Marginal product | MRP at $10 |
0 | 0 | 0 | 0 |
1 | 30 | 30 | 300 |
2 | 55 | 25 | 250 |
3 | 70 | 15 | 150 |
4 | 78 | 8 | 80 |
5 | 85 | 7 | 70 |
6 | 89 | 4 | 40 |
Yes, the firm will employ the 2nd unit of capital because from the data in the table, it is clear that the marginal revenue product (MRP) of the capital of the 2nd unit is $250 which is greater than the capital rental rate of $100. Therefore, the firm can generate benefits at the 2nd unit of capital, and the firm will choose this unit.
Introduction: Marginal revenue is the earning or benefit which is obtained by using an additional unit of the product or factor of production.
Capital is an asset to the firm which generates value or advantage and this is also the factor of production for any firm.
c)
The number of units of capital that firm will employ.
c)
Explanation of Solution
Q (capital) | Output | Marginal product | MRP at $10 |
0 | 0 | 0 | 0 |
1 | 30 | 30 | 300 |
2 | 55 | 25 | 250 |
3 | 70 | 15 | 150 |
4 | 78 | 8 | 80 |
5 | 85 | 7 | 70 |
6 | 89 | 4 | 40 |
The firm will continue to hire capital resources until the capital rental rate exceeds the MRP. And, in this case, the firm will employ 3 units of capital where it generates more MRP as compared to the capital rental rate; after the three units, the firm’s MRP is less than its capital rental rate which can cause losses to the firm.
Therefore, the firm will hire 3 units of capital.
Introduction: Marginal revenue is the earning or benefit which is obtained by using an additional unit of the product or factor of production.
Capital is an asset to the firm which generates value or advantage and this is also the factor of production for any firm.
Chapter 70 Solutions
Krugman's Economics For The Ap® Course
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