Question

Thompson Garage Doors is a company that installs automatic garage door openers. It charges an average price of $500 per installation. Variable costsexcluding wages for workers amount to $200 per installation. In addition, you are given the following information about the productivity of the workers:

Number of Workers	Installations per Week	Marginal Product	Net Marginal Revenue Product
1	5
2	13
3	18
4	22
5	25
6	27
7	28

         

a)Complete the table.

b)If each worker receives $1400 per week, how many will the owner hire? Explain.

c)How many workers would be hired at $1,800 per week? Explain.

Answer 1

Marginal product and Marginal Revenue respectively from beginning of chart will be

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8 4000

5 2500

4 . 2000

3. 1500

2 . 1000

1. 500

Answer for B)

Okay, Lets calculate Profit for each level of workers
If they hire 1 worker then profit is 500*5-(1400*1)-200*5=2500-2400=100...Now if 1 worker is used then they will have 5 installations hence Revenue is 2500 labor cost is $1400/worker therefore $1400 and $200 per installations as we have 5 installations hence 1000 hence the profit of $100
Noe if Workers are 2 then Profit2=6500-2800-(200*13)=$1100

Profit3=9000-4200-3600=$1200

Profit4=11000-5600-4400=$1200

Profit5=12500-7000-5000=$500

Profit6=13500-8400-5400=-$300

Profit7=14000-9800-5600=-1400

Hence Profit will be maximum at either 3 workers or 4 workers hence 3 workers (As producer will always choose less capital for higher profits)

Answer for c)

Profit1=2500-1800-1000=-$300

Profit2=6500-3600-2600=$1300

Profit3=9000-5400-3600=$0

Profit4=11000-7200-4400=-$600

Hence they will hire 2 workers in this case when wages are $1800