Part 1. Excel
1. Create a table similar to the one we did in the beginning of the lecture (see the attached file for an example). If you’d like, you can use the practice one since I’d like you to use the same exact formula: Q = (K^.5)(L^.5) for L and K running from 1 to 10. Label this “Quantity.”
2. Create a second table where you take all of the values from the first table and multiply them by the price of the item: P = $20. Label this “Revenue.” You should find a maximum revenue of $200.
3. Create a third table where you use the same L and K values from table 1, but this time you use the formula: C = 10L + 10K such that wages and rental rates are both $10 per hour. Label this “Cost.” You should find a maximum cost of $200.
4. Finally, create a fourth table where the values are equal to the table 2 values minus the table 3 values. Label this “Profit.” Your maximum profit should be $0.
Now answer the following questions:
1. What was your optimal choice for labor and capital to reach the zero profit outcome?
2. Why might you expect to see a zero-profit outcome; would it be due to light competition or heavy competition?
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