see that it must be losing $1 for each unit produced (that is, average cost of $26/unit minus the price of

$25/unit). With five units produced, this observation implies total losses of $5.

c. When producing five units, marginal costs are $30/unit. Price is $25/unit. Thus, the marginal unit is

not adding to profits, but is actually subtracting from profits, which suggests that the firm should

reduce its quantity produced.

5. The marginal product of the third painter is 75 square feet.

6. The new table should look like this:
548

7.

Labor Cost

Machine Cost

Total Cost

Cost of technology 1 10 × $40 = $400 2 × $50 = $100 $500

Cost of technology 2 7 × $40 = $280

4 × $50 = $200 $480

Cost of technology 3 3 × $40 = $120

7 × $50 = $350 $470

The firm should choose production technology 3 since it has the lowest total cost. This makes sense since,

with cheaper machine hours, one would expect a shift in the direction of more machines and less labor.

Labor Cost

Machine Cost
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