Question
In: Economics
You are given the following information for a T-shirt manufacturing firm: Price per T-shirt is $5....
You are given the following information for a T-shirt manufacturing firm: Price per T-shirt is $5. With Total Labor Units as 1 employee, the firm’s Total Product (TP) is 20 shirts/day; with 2 employees, TP=50 shirts/day; with 3 employees, TP=75 shirts/day; with 4 employees, TP=95 shirts/day; and with 5 employees, TP=110 shirts/day. With zero employees, it produces nothing. Therefore, the maximum payment to labor per day that this profit-maximizing T-shirt manufacturer would be willing to make when it wants to hire the third employee is ___ per day. [Hint: Construct a table with given data for Total Labor Units (i.e. no. of employees) and Total Product. Then calculate MPL and MRPL corresponding to each level of no. of employees, and answer the question. MRPL = MPL x PX]
Solutions
Expert Solution
The profit maximizing firm will ready to make a payment equals to marginal revenue product or value of marginal product at particular quantity of labor it want to hire.
Formula for marginal product = Change in TP / change in Labor
Marginal revenue product of labor(MRPL) = MP x Price
| Price | L | TP | MP | MRPL |
| 5 | 1 | 20 | 20 | 100 |
| 5 | 2 | 50 | 30 | 150 |
| 5 | 3 | 75 | 25 | 125 |
| 5 | 4 | 95 | 20 | 100 |
| 5 | 5 | 110 | 15 | 75 |
So here to hire 3rd unit of labor, the MRPL is 125. It means that firm is ready to pay 125 to hire 3rd unit of labor.
Therefore, the maximum payment to labor per day that this profit-maximizing T-shirt manufacturer would be willing to make when it wants to hire the third employee is 125 per day.
Rahul Sunny answered 1 year agoRelated Solutions
Consider the following information for a T-shirt manufacturing firm that can sell as many T-shirts as...
Consider the following information for a T-shirt manufacturing
firm that can sell as many T-shirts as it wants for $10 per
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# of Workers
# of shirts produced per day
MPI
TR
MRPI
0
0
1
40
2
85
3
135
4
195
5
50
6
285
7
315
8
200
9
100
a) Fill in the missing parts of the above table.
b) Verify that MRPl can be calculated in two ways: by change in
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If production is expected to increase, which of the following
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2.50
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2.70
2
2.66
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2.43
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2.57
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2.55
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2.63
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2.85
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2.94
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2.99
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You are given the following table of output pertaining to T-Shirt sales data from different stores...
You are given the following table of output pertaining to
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and price is the price in dollars of the T-shirt.
Table 1: OLS regression Price and T-Shirts sold
Dependent variable:
shirts
price -0.40∗∗∗
(0.10)
Constant 7.00∗∗∗
(0.06)
Observations 1120
R2 0.20
Adjusted R2 0.20
Residual Std. Error 7.26 (df = 998)
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Required information [The following information applies to the questions displayed below.] Inner Secret T Shirt Company...
Required information
[The following information applies to the questions
displayed below.]
Inner Secret T Shirt Company produces and sells one product. The
following information pertains to each of the company’s first three
years of operations:
Variable costs per unit:
Manufacturing:
Direct materials
$
27
Direct labor
$
15
Variable manufacturing
overhead
$
5
Variable selling and
administrative
$
3
Fixed costs per year:
Fixed manufacturing
overhead
$
600,000
Fixed selling and administrative
expenses
$
170,000
During its first year of...
Required information [The following information applies to the questions displayed below.] Inner Secret T Shirt Company...
Required information
[The following information applies to the questions displayed
below.]
Inner Secret T Shirt Company produces and sells one product. The
following information pertains to each of the company’s first three
years of operations:
Variable costs per unit:
Manufacturing:
Direct materials $ 27
Direct labor $ 15
Variable manufacturing overhead $ 5
Variable selling and administrative $
3
Fixed costs per year:
Fixed manufacturing overhead $
600,000
Fixed selling and administrative expenses
$ ...
Required information [The following information applies to the questions displayed below.] Inner Secret T Shirt Company...
Required information
[The following information applies to the questions
displayed below.]
Inner Secret T Shirt Company produces and sells one product. The
following information pertains to each of the company’s first three
years of operations:
Variable costs per unit:
Manufacturing:
Direct materials
$
27
Direct labor
$
15
Variable manufacturing
overhead
$
5
Variable selling and
administrative
$
3
Fixed costs per year:
Fixed manufacturing
overhead
$
600,000
Fixed selling and administrative
expenses
$
170,000
During its first year of...
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