Question

Henry can purchase mixers (capital) for his bakery. where he makes loaves of bread. The productivity and revenue generated by additional mixers is presented in the table below. Assume this is a perfectly competitive market. Henry's Bakery and Revenu es Capital (mixers) 0 Total Product (loaves of bread) Marginal ProductPrice Total Revenue Marginal Revenue (loaves of bread) (dollars)(dollars) Product (dollars) Ints 60 84 182 114 120 123 $33 27 24 18 12 20 28 6 38 40 41 4 6 How much capital does Henry demand if the current price of a mixer is $12? O 6 mixers 4 mixers O 3 mixers O 5 mixers

Answer 1

As marginal cost of production is cost of an additional capital employed, which is price of capital ,

At equilibrium, MR =MC , so at K= 5, MR = MC = 12

total profit is maximised ,

So answer is option D)