Question

As the manager of restaurant, you estimate the total product of labor used to cook metals. Use these data to calculate the marginal product of labor

Quantity of Labor	Total Product	Marginal Product
0	0
1	20
2	45
3	65
4	80
5	90

-What effect does the law of diminishing marginal returns have on these schedules? What underlies the law of diminishing the marginal returns?

2As a result of increasing student population at the University of Pittsburg the nearby Pizza Hut restaurant is realizing record sales. It is considering adding a new ovem to bake additional pizzas. However, the daytime supervisor recommends simply employing more workers. How should the manager decide which course of action to take?

-Suppose that a perfectly competitive firm sells 300 batteries at $10 each. At this output, the firm's total variable cost is $1,800 and its total fixed cost is $600. Calculate the firm's profit per unit and total profit from this information.

-Why does the market system provide goods such as Pepsi-Cola, while the govenment provides goods such as highways and lighthouses?

Answer 1

Quantity of Labor	Total Product	Marginal Product
0	0	0
1	20	20
2	45	25
3	65	20
4	80	15
5	90	10

Marginal product would be defined as addition in production on employment of 1 more labor.

So in above table in order to find out marginal product (MP), the formula would be

MP_n = TP_n – TP_n-1 ; n>=1

Where TP means total product.

Using this formula above table is populated. For quantity of labor equals 0 obviously MP equals 0.

Now we see that MP decreases as we go on employing more and more labor. This is how law of diminishing marginal returns act. But we also see that TP is increasing. So, till when MP becomes 0, TP will continue to increase. Till then more labor can be employed to in order to increase production. After that MP will become negative and thus TP will decrease.

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Now, as the sales of pizza hut is increasing they are trying to find the answer that whether to employ more employees or install a new oven. Now both strategies could be beneficial but in different time frames.

In the short run it is easier to employ more workers ( variable factor) than install a new oven (fixed factor). If in short run MP of labor is above 0, it will be beneficial for pizza hut to employ more workers and increase the total production and thus sales.

But in the long run if more employees are recruited and only one oven is there, then many workers won’t be able to use the oven hence their productivity will become low or even negative. It will result in negative MP of labor. If still sales are picking up Pizza hut will have to install a new oven where employees can work to their full potential and help in increasing production.

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Here

Total selling price (SP) of the firm = $10*300 = $3000

While his total cost is equal to summation of total variable cost and total fixed cost

i.e. TC = TVC + TFC

TC = $1800 + $600 = $2400

Now total profit or Gain (G) = Sp – TC

G = $3000 - $2400 = $600

Now profit per unit equals G divided by number of units

i.e. = $600/300 = $2

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Typically market system provides those goods and services which can produce direct profits, while government provides those goods which are meant for total welfare of the society. In other words markets provide private goods and government provides public goods.

A public good works on non-rivalrous(consumption of these goods by one do not affect consumption of others) and non-exclusivity principles (one can not be excluded from its usage ). Now highways and lighthouse fall under this category which is used by all. But pepsi-cola is not used by all, it can be used by only the person who buys it.

Moreover public goods typically involve huge expenditures and thus private players are not able to meet those expenditures. This large expenditure can be made only by government in most cases. Also, sometimes law prohibits market systems to provide for public goods.