Question

Orange Inc. sells cell phones in a perfectly competitive market in the short-run. Capital and labor are two resource factors used to produce the cell phones. Capital is fixed in the short-run but labor can vary. The market for hiring labor is a perfectly competitive market.

Labor is measured in worker weeks. Each worker week costs $600 of wages and Orange Inc. can hire any number of worker weeks. Each cell phone is sold at a price of $200 and can sell any number of phones that are produced. Information is given below on various amounts of labor and output.

Quantity	Output	Marginal Product of Labor	Total Revenue	Marginal Revenue	Marginal Revenue Product	Total Variable Cost	Marginal Cost	Marginal Resource Cost
0	0	-	-	-	-	-	-	-
1	6	6	1200	200	1200	600	100	600
2	11	5	2200	200	1000	1200	120	600
3	15	4	3000	200	800	1800	150	600
4	18	3	3600	200	600	2400	200	600
5	20	2	4000	200	400	3000	300	600
6	21	1	4200	200	200	3600	600	600

Using the table you created in Step 2, create a graph that illustrates the profit maximizing level of input price and input quantity for the company using marginal analysis.

The graph can be computer-generated or created by hand. Indicate the profit maximizing input quantity and input price in this graph.

Answer 1

The profit maximizing quantity of input is where MRP = MRC. From the table and graph it is seen that MRP = MRC = $600 at the input quantity of 4worker weeks.

Thus, the the profit maximizing input quantity is 4 worker weeks and input price is $600.