Question
In: Economics
The following table shows the total output per hour produced in a factory for various levels of employment of labor:
The following table shows the total output per hour produced in a factory for various levels of employment of labor:
Number of Workers | Total Output |
| 1 | 8 |
| 2 | 18 |
| 3 | 30 |
| 4 | 41 |
| 5 | 50 |
| 6 | 55 |
| 7 | 59 |
| 8 | 61 |
A) The firm sells each unit of output at $2, and each worker is paid a wage of $12.
After how many workers, does diminishing returns start to occur?
B)
The firm sells each unit of output at $2, and each worker is paid a wage of $12.
How many workers should the firm employ in order to maximize profit?
Solutions
Expert Solution
A) diminishing returns refer to decrease in marginal product of labor.
Diminishing returns begin after 3rd worker.
B) real wage = 12/2= 6
Profit is maximized by producing at a point where marginal product of labor is greater than or equal to real wage.
This condition is satisfied When L = 5 and MPL = 50-41= 9
The firm should hire 5 workers
Rahul Sunny answered 2 years agoRelated Solutions
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Table 1
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Output per Hour
Price of the Product
0
0
$3
1
7
$3
2
12
$3
3
15
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17
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