(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.

Rahul Sunny answered 1 year ago

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