Question

In: Economics

(TCOs C and D) You have been hired to manage a small manufacturing facility whose cost...

(TCOs C and D) You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below. (20 points)

Workers Total Labor Cost Output Total Revenue
1 $250 60 $150
2 $500 110 $475
3 $750 150 $725
4 $1,000 180 $925
5 $1,250 200 $1,065
6 $1,500 210 $1,195
7 $1,750 215 $1,295

Part A) (5 points) What is the marginal product of the second worker?. (Part B) (5 points) What is the marginal revenue product (MRP) of the fourth worker? (Part C) (5 points) What is the marginal cost (MC) of the first worker? (Part D) (5 points) Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer.

Solutions

Expert Solution

Part A) Marginal product of the second worker = Total output of 1st and 2nd worker - Total output of 1the 1st worker = 110 - 60 = 50

Part B) Marginal revenue product of the 4th worker = Total revenue when 4 workers are hired - Total revenue when 3 workers are hired = $925 - $725 = $200.

Part C) The marginal cost of the first worker = total labor cost when only 1 worker is hired = $250

Part D) Profit maximizing firms hire workers upto the point at which the marginal cost of a worker equals marginal revenue product of the worker. The table shows the marginal revenue product and the marginal cost of each worker.

Workers

Total Labor Cost

Marginal Labor Cost

Output

Total Revenue

Marginal Revenue

1

$250

$250

60

$150

$150

2

$500

$500 - $250 = $250

110

$475

$475 - $150 = $325

3

$750

$750 - $500 = $250

150

$725

$725 - $475 = $250

4

$1,000

$1000 - $750 = $250

180

$925

$925 - $725 = $200

5

$1,250

$1250 - $1000 = $250

200

$1,065

$1065 - $925 = $140

6

$1,500

$1500 - $1250 = $250

210

$1,195

$1195 - $1065 = $130

7

$1,750

$1750 - $1500 = $250

215

$1,295

$1295 - $1195 = $100

The marginal cost of a worker equals the marginal revenue product when 3 workers are hired. So, I would hire 3 workers.


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