Question

P&L is a profit-maximizing shirt manufacturing firm. The firm can sell all the shirts it can produce to retailers at a price of $20 each. P&L can hire all of the workers it wants at a market wage of $120 per day per worker. The table below shows the firm’s short-run production function.

Number of Workers	Number of Shirts per Day
0	0
1	10
2	25
3	45
4	60
5	72
6	80
7	85
8	82

Answer the following based on the above information

What is the marginal physical product of the 5th worker?

choices:

10

15

25

12

Next question:

Refer to the chart in Question #1.

After what worker does Diminishing Marginal Product occur?

a.1

b.2

c.3

d.4

3.

Refer to the chart in Question #1: Calculate the marginal revenue product (VMPL) of the third worker.

Group of answer choices

400

300

160

100

4.

Refer to the chart in Question 1: How many workers should the firm hire to maximize profit

Group of answer choices

8

7

6

5

5.

Refer to the chart in Question #1: If the price of shirts decreased to $15 and the wage per day of workers increased to $150, how many workers would be hired due to this change?

Group of answer choices

2

4

6

5

Answer 1

Number of workers	Number of shirts per day	Marginal physical product of worker (MPL)	Value of marginal physical product of worker (VMPL)
0	0	--	----
1	10	10	200
2	25	15	300
3	45	20	400
4	60	15	300
5	72	12	240
6	80	8	160
7	85	5	100
8	82	-3	-60

Marginal Physical product of worker (MPL) = (Change in number of shirts produce / Change in number of workers)

Value of Marginal Physical product of worker (VMPL) = Price of shirts *  Marginal Physical product of worker

1. Marginal Physical product of 5th worker is 12.

Answer: Option (D)

2. Diminishing marginal product occurs when Marginal Physical product of worker start decreasing.

It starts decreasing from 4th worker.

Answer: Option (D)

3. VMPL of the third worker is 400.

Answer: Option (A)

4. A firm hires woker till VMPL is higher than wage or VMPL = Wage.

Wage rate = $120.

Till 6 unit of worker, VMPL is higher than the wages. Hence, firm should hire 6 worker in order to maximize profit.

Answer: Option (C)

5. Now price of shirts is $15 and wage is $150.

Number of workers	Number of shirts per day	Marginal physical product of worker	Value of marginal physical product of worker
0	0
1	10	10	150
2	25	15	225
3	45	20	300
4	60	15	225
5	72	12	180
6	80	8	120
7	85	5	75
8	82	-3	-45

Wage rate = $150.

Now VMPL is higher than wage till 5 units of worker. Hence, firm will hire 5 units of worker in order to maximize the profit.

Answer: Option (D)