Question

Use the following data to work Problems 11 to 14.

Kaiser’s Ice Cream Parlour hires workers to produce milkshakes. The market for milkshakes is perfectly competitive, and the price of a milkshake is $4. The labour market is competitive, and the wage rate is $40 a day. The table shows the workers’ total product schedule.

Number of workers	Quantity produced (milkshakes per day)
1	7
2	21
3	33
4	43
5	51
6	55

Calculate the marginal product of hiring the fourth worker and the fourth worker’s value of marginal product

12.     How many workers will Kaiser’s hire to maximize its profit and how many milkshakes a day will Kaiser’s produce?

13.     If the price of a milkshake rises to $5, how many workers will Kaiser’s hire

Kaiser’s installs a new machine for making milkshakes that increases the productivity of workers by 50 percent. If the price of a milkshake remains at $4 and the wage rises to $48 a day, how many workers does Kaiser’s hire?

.

Answer 1

11.

Marginal Product of 4th worker = (43-33)/(4-3)=10
Fourth worker marginal value product = 10*4=40

12. Kaiser will hire 4 no of workers and per day Kaiser will produce 43 milkshakes (from the below table we can notice profit is maximum where MVP = wage)

Number of workers	Quantity produced (milkshakes per day)	TR	TC	Profit	MP	MVP	Wage
1	7	28	40	-12		0	40
2	21	84	80	4	14	56	40
3	33	132	120	12	12	48	40
4	43	172	160	12	10	40	40
5	51	204	200	4	8	32	40
6	55	220	240	-20	4	16	40

13.

Kaiser will hire 5 no of workers and per day Kaiser will produce 51 milkshakes (from the below table we can notice profit is maximum where MVP = wage)

Number of workers	Quantity produced (milkshakes per day)	TR	TC	Profit	MP	MVP	Wage
1	7	35	40	-5		0	40
2	21	105	80	25	14	70	40
3	33	165	120	45	12	60	40
4	43	215	160	55	10	50	40
5	51	255	200	55	8	40	40
6	55	275	240	35	4	20	40

14.

Kaiser will hire 5 no of workers and per day Kaiser will produce 76.5 or 77 milkshakes (from the below table we can notice profit is maximum where MVP = wage)

Number of workers	Quantity produced (milkshakes per day)	TR	TC	Profit	MP	MVP	Wage
1	10.5	42	48	-6		0	48
2	31.5	126	96	30	21	84	48
3	49.5	198	144	54	18	72	48
4	64.5	258	192	66	15	60	48
5	76.5	306	240	66	12	48	48
6	82.5	330	288	42	6	24	48