Question

2. The owner and manager of a duplicating service near a major university, is contemplating keeping his shop open in the evening until midnight. In order to do so, he would have to hire additional workers. He estimates that the additional workers would generate the following total output (where each unit of output refers to 100 pages duplicated). If the price of each worker hired must be paid $95 and the price of each unit of output duplicated is $6, how many workers should he hire? (10 points)

Workers Hired   0              1              2              3              4              5              6

Total Product     0              21           40           59 75 85           92                                                                          

                To work this problem you will need to compare MRP to MRC

Answer 1

Ans:

4 workers should be hired.which is computed as under.

The decision to how many workers should be hired should be based on marginal revenue product and marginal revenue cost.workers are hired up to the point where marginal revenue product is equal to or more than marginal revenue cost.

Total wage cost = workers hired * $95

Total revenue product = Total product * $6

Marginal cost is the additional cost from employing an additional worker.

Marginal revenue is the additional revenue from employing a additional worker.

Table showing marginal revenue product and marginal revenue cost  

workers hired	Total wage cost	Marginal revenue cost	Total product	Total revenue product	Marginal revenue product
0	0	0	0	0	0
1	$95	$95	21	$126	$126
2	$190	$95	40	$240	$114
3	$285	$95	59	$354	$114
4	$380	$95	75	$450	$96
5	$475	$95	85	$510	$60
6	$570	$95	92	$552	$42

Hence, 4 workers should be hired.because up to 4 workers marginal revenue product is more than marginal revenue cost.