Question

Markets for Factors of Production

Robert hires workers to pack the Haskap berries he is growing.

The market for Haskap berries is perfectly competitive, and the price of Haskap berries is $2 per bucket. The labour market is competitive, and the market wage rate is $16/hour.  

Table 1.0 below shows the workers’ total product schedule

# of workers	# buckets of Haskap berries produced per hour
1	14
2	26
3	36
4	44
5	50

Table 1.0

Answer the following:

1. What is the marginal product of the third worker hired, and what is that worker’s Value of Marginal Product?

2. How many workers will Robert hire to maximize profit and what will the workers produce?

3. If the market wage rate rises to $20/hour, how many workers will Robert hire?

           

1

INSTRUCTIONS

Answers to all three questions Filetype must be readable by Microsoft Word or PDF.   If you include diagrams, insert them as pictures into the document. You must show your work.

Answer 1

Ans:  The marginal product of the third worker hired is 10 and that worker’s Value of Marginal Product is $20

Explanation:

Marginal Product = Change in Total product / Change in number of workers

Marginal Product of 3rd worker = ( 36 - 26 ) / ( 3 -2 ) = 10 / 1 = 10

Value of Marginal Product = Marginal Product * Price

Value of Marginal Product of 3rd worker = 10 * $2 = $20

Ans: Robert will hire 4 workers to maximize profit and the workers will produce 44 buckets of Haskap berries.

Explanation:

As per marginal productivity theory , the firm will hire the number of workers where value of marginal product equals wage rate ( VMP = Wage rate)

Here , the market wage rate is $16. So the firm will hire 4 number of workers.

Ans: Robert will hire 3 workers  

Explanation:

As per marginal productivity theory , the firm will hire the number of workers where value of marginal product equals wage rate ( VMP = Wage rate)

Here , the market wage rate is $20. So the firm will hire 3 number of workers.

# of workers	# buckets of Haskap berries produced per hour	Marginal Product	Value of the Marginal Product
1	14	14	28
2	26	12	24
3	36	10	20
4	44	8	16
5	50	6	12