Question

1) The following table depicts the output of a firm that manufactures computer printers. The printers sell for $100 each.

Calculate Marginal Revenue Product for each level of labor

Labor Input (Weekly)            Output

      10             200
      11             218
      12             234
      13             248
      14             260
      15             270
      16            278

2)

Refer back to your answers to Problem1 in answering the following questions.

1. What is the maximum wage the firm will be willing to pay if it hires 15 workers?

2. The weekly wage paid by computer printer manufacturers in a perfectly competitive market is $1,200. How many workers will the profit- maximizing employer hire?

3. What is the weekly cost per worker?

Answer 1

1)

It shall be noted that Marginal Revenue Product for each level of Labor = Marginal Physical Product at each level of Labor * Price of Printer

The Marginal Physical Product of labor at L2 level = (Output(L2) - Output(L1))/(L2 - L1)

Thus, the Marginal Revenue Product (MRPL) for each level of Labor is:

L (Weekly)	Output	MPL	Price of Printer $100	MRPL
10	200	20	100	2000
11	218	18	100	1800
12	234	16	100	1600
13	248	14	100	1400
14	260	12	100	1200
15	270	10	100	1000
16	278	8	100	800

2)

If the firm is willing to hire 15 workers, the maximum wage it would be willing to pay would be equal to the marginal revenue product of labor at 15th worker, that is $1000

Hence, the maximum wage the firm will be willing to pay if it hires 15 workers is $1000 per labor per week

If the weekly wage paid by computer printer manufacturers in a perfectly competitive market is $1,200, the optimal number of workers that would be hired is 14 workers as the wage of $1200 per labor per week is equal to the marginal revenue product of the labor.

Thus, the workers that the profit-maximizing employer would hire is 14 workers