Question

The table below represents a production schedule for Quincy’s Quiche Corner, a restaurant in a mall that sells quiches. Assume Quincy’s operates in a perfectly competitive environment (in both input and output markets), so it is both a price-taker and a wage-taker.

a) Fill in the missing values in the table, assuming the selling price per quiche is $3.

WorkersOutput (quiches)Marginal Product Value of Marginal Product

                      

     0                 0

     1                 10                        10                      $30

     2                 18                        _____                            $24

     3                 24                            6                      _____

     4                 28                        _____                            $12

     5                 30                        _____                            _____

1) Does marginal product increase or decrease as additional workers are hired?

Employees are primarily high school students with virtually identical skills as quiche makers, and they are paid a wage rate of $8.00 per hour.

2) If the firm follows the profit-maximizing rule, hiring additional workers as long as the value of marginal product exceeds the wage rate (or marginal profit is positive), how many workers will the firm hire?

Answer 1

Answer : Table showing information such as :

WORKERS	OUTPUT	MP	VALUE OF MP (Price *MP)
0	0	-	-
1	10	10	$30
2	18	(i) 8	$24
3	24	6	$18
4	28	(ii)4	$12

5

30

(iii)2

$6

(a) The MP of labour = TP_n+1 - TP_n / L_n+1 -L_n

(i) MP of labour = 18-10 /2-1 = 8

(ii)MP of labour = 28-24/4-3 =4

(iii) MP of labour = 30-28/ 5-4 =2

Marginal product has been decreased as more labour has been hired because as we have seen that output has been increased as workers increased but in the table we have seen that marginal product has been decreasing.

(b) If firm want to maximise there profit they can hired the worker till the value of marginal product is more than wage rate of labour.

Here the Wage rate = $8

From the above table it shows that the 4 workers should hired because here VMP> W It means $12 > $8 . Here the $12 is the value that the firm gain from additional employed of the worker and $8 is the wage rate that has been given to the worker.