In: Economics
(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.
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.