Question

1. Felicia Álvarez, a bakery manager, faces the total product curve shown, which gives the relationship between the number of workers she hires each day and the number of loaves of bread she produces, assuming all other factors of production are given.

Number of workers per day	Loaves of bread per day	Marginal Product	Marginal Revenue Product
0	0
1	400
2	700
3	900
4	1,025
5	1,100
6	1,150

Assume that bakery workers in the area receive a wage of $100 per day and that the price of bread is $1.00 per loaf.

1. Fill in the columns above for Marginal Product and Marginal Revenue Product. (one should have dollar signs and one does not!)
2. Plot the bakery’s marginal revenue product curve on a graph.
3. Plot the bakery’s marginal factor cost curve on the same graph (see examples of what the graph should look like in section 14.1).

4. How many workers will Ms. Álvarez employ per day? 4
5. Suppose that the price of bread falls to $.75 per loaf. How will this affect the marginal revenue product curve for workers at the firm? Plot the new curve, label it MRP₂.

6. How will the shift in MRP affect the number of workers Ms. Álvarez hires?

7. Suppose the price of bread rises to $1.50 per loaf. How will this affect the marginal revenue product curve for workers? Plot the new curve, label it MRP₃.

8. How will the shift in MRP affect the number of workers that Ms. Álvarez hires?

Answer 1

			P=$1.00						P=$0.75	P=$1.5
Number of workers per day	Loaves of bread per day	Marginal Product	MRP1 (in $)	TR (P=$1)	MR	MFC	TR (P=$0.75)	MR	MRP2 (in $)	MRP3 (in $)
0	0			0		100	0
1	400	400	400	400	1	100	300.0	0.75	300.0	600.0
2	700	300	300	700	1	100	525.0	0.75	225.0	450.0
3	900	200	200	900	1	100	675.0	0.75	150.0	300.0
4	1,025	125	125	1025	1	100	768.8	0.75	93.8	187.5
5	1,100	75	75	1100	1	100	825.0	0.75	56.3	112.5
6	1,150	50	50	1150	1	100	862.5	0.75	37.5	75.0
The firm will employ 4 workers per day when P=$1.00
The firm will employ 3 workers per day when P=$0.75
The firm will employ 5 workers per day when P=$0.75