5 a Fill in Table 5 b Diminishing returns setsin with theuni

5. (a) Fill in Table 5 b) Diminishing returns setsin with theunit ofland (c) Negative returns sets in with the unit ofland. (d) How many units ofland would you hireif the rent for each unit were (1) $250? (3) $106 (2) $205? (4) $80 (5) $58 Table 5 Margin al Physical TotalMarginal Revenue Revenue Product Product Units of an Output Product Price 50 15 29 35 34 31 29 26 24 23 23 43 10 46 12

Solution

Marginal physical product (nth unit) = Output (n units) - Output ((n-1) units)

Total revenue product = Output x Price

Marginal revenue product (nth unit) = Total revenue product (n units) - Total revenue product ((n-1) units)

b) Diminishing returns set in with the 6th unit of land (MPP begins to fall)

c) Negative returns set in with the 12th unit of land (MPP falls below zero)

d)

Profit would be maximized when the last unit of land employed has MRP >= rental rate

1) rent = $250 : 0 units of land would be hired (use the table above to read the values of MRP)

2) rent = $205 : 4 units of land would be hired

3) rent = $106 : 5 units of land would be hired

4) rent = $80 : 6 units of land would be hired

5) rent = $58 : 7 units of land would be hired

Units of Land	Output	MPP	Price	TRP	MRP
1	4		50	200
2	9	5	48	432	232
3	15	6	45	675	243
4	22	7	40	880	205
5	29	7	34	986	106
6	35	6	31	1085	99
7	40	5	29	1160	75
8	43	3	26	1118	-42
9	45	2	24	1080	-38
10	46	1	23	1058	-22
11	46	0	23	1058	0
12	45	-1