Question

Use the data in the table about Homer’s Donuts to answer the questions below:

Number of workers	Total Output	Total Revenue	Value of the marginal product of labor
0	0
1	40
2	70
3	90
4	100
5	105
6	107
7	105

a. Complete the table assuming a price of $1.00.   

b. Assuming the price of donuts is $1.00, and the market wage is $8 an hour, what is the maximum number of workers Homer will hire?  

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c. If the price of donuts rises to $2.00 and wages stay the same, how many workers will Homer’s Donuts hire?

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d. If the price of donuts is $1.00 and wages rise to $15 an hour, what is the maximum number of workers Homer will hire?  

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Answer 1

	1)	Number of workers	Total Output	Total Revenue(price=$1)	marginal revenue $1	Total Revenue(price=$2)	marginal revenue $2	Value of the marginal product of labor
		0	0	0	0	0	0
		1	40	40	40	80	80	40
		2	70	70	30	140	60	30
		3	90	90	20	180	40	20
		4	100	100	10	200	20	10
		5	105	105	5	210	10	5
		6	107	107	2	214	4	2
		7	105	105	-2	210	-4	-2
				2) quantity of labour where marginal revenue product of labor is greater than the nominal wage, or up to the point where the marginal revenue product of labor is equal to the nominal wage
				therefore since mkt wage is $8 MR is greater till 4 units of labour
				homer will hire 4 workers
				3) if price is $2 and wage $8
				MR is greater the $8 till 5 workers are engaged. Homer will hire 5 workers
				4)price of donuts is $1.00 and wages rise to $15
				homer will hire 3 workers as after this MR becomes lower then $15