2. A firm’s products sells for $4 per unit in a highly competitive market. The firm produces output using capital (which it rents at $25 per hour) and labor (which is paid a wage of $30 per hour under a contract for 20 hours of labor services). Complete the following table and use that information to answer these questions.
a. Identify the fixed and variable inputs.
b. What are the firms fixed costs?
c. What is the variable cost of producing 475 units of output?
d. How many units of the variable input should be used to maximize profits?
e. What are the maximum profits the firm can earn?
f. Over what range of the variable input usage do increasing marginal returns exist?
g. Over what range of the variable input usage do decreasing marginal returns exist?
h. Over what range of input usage do negative marginal returns exists?
K L Q MPx Apk APL VMPk
0 20 0
1 20 50
2 20 150
3 20 300
4 20 400
5 20 450
6 20 475
7 20 475
8 20 450
9 20 400
10 20 300
11 20 150

4. An economist estimated that the cost function of a single –product firm is
C(Q) = 100 + 20Q + 15Q2 + 10Q3
Based on this information, determine:
a. The fixed cost of producing 10 units of output.
b. The variable of producing 10 units of output.
c. The total cost of producing 10 units of output.
d. The average fixed cost of producing 10 units of output.
e. The average variable cost of producing 10 units of output.
f. The average total cost of producing 10 units of output.
g. The marginal cost when Q=10.

6. A firm’s fixed cost for 0 units of output and its average total cost of producing different output levels are summarized in the table below. Complete the table to find the fixed cost, variable cost, total cost, average fixed cost, average variable cost, and marginal cost at all relevant levels of output.
Q FC VC TC AFC AVC ATC MC
0 $15,000 0
100 300
200 200
300 175
400 225
500 325
600 400