Question

Ms. Smith, the owner and manager of the Clear Duplicating Service located near a major university, is contemplating keeping her shop open after 4PM and until midnight. In order to do so, she would have to hire additional workers. She estimates that the additional workers would generate the following total output (where each unit of output refers to 100 pages duplicated). If the price of each unnit of output is $10 and each worker hired must be paid $40 per day, how many workers should Ms. Smith hire?

Wokers hired 0   1     2   3    4    5   6

Total Product 0 12 22 30 36 40 42

Find the marginal revenue product of labor for the data in the problem above from the change in total revenue resulting from the employment of each additional unit of labor, and show that the number of workers that Ms. Smith should hire is the same as that obtained in the problem above.

Answer 1

Answer : Table showing information :

Workers hired	Total product	Marginal product	Price of an output	Marginal revenue product
0	0	-	$10	0
1	12	12	$10	$120
2	22	10	$10	$100
3	30	8	$10	$80
4	36	6	$10	$60
5	40	4	$10	$40
6	42	2	$10	$20

Mr Smith should hired 5 workers because here wage rate is exactly equal to marginal revenue product in the company in systematic and logical manner.