Question

Use the data in the table about Homer’s Donuts to answer the questions below:

Number of workers	Total Output (per hour)	Total Revenue	Value of the marginal product of labor (per hour)
0	0
1	20		40
2	35		30
3	45		20
4	50		10
5	54		8
6	56		4
7	53		-6

a. Complete the table assuming a price of $1.00.   

b. Assuming the price of donuts is $1.00, and the market wage is $8 an hour, what is the maximum number of workers Homer will hire?  

__________________________

c. If the price of donuts rises to $2.00 and wages stay the same, how many workers will Homer’s Donuts hire?

__________________________

d. If the price of donuts is $1.00 and wages rise to $15 an hour, what is the maximum number of workers Homer will hire?  

__________________________

Answer 1

P=$1, W=$8
Number of workers	Total Output (per hour)	Total Revenue	MR	MPL	Value of the marginal product of labor (per hour) MPL*MR
0	0	0
1	20	20	1	20	20
2	35	35	1	15	15
3	45	45	1	10	10
4	50	50	1	5	5
5	54	54	1	4	4
6	56	56	1	2	2
7	53	53	1	-3	-3

Total revenue is the product of price and quantity. TR= 1*Q

If wages = $8, the equilibrium will occur at a point where VMPL=W or VMPL is at least greater than wages of $8. This happens when the firm hires 3 units of labor and produces 45 units.

P=$2, W=$8
Number of workers	Total Output (per hour)	Total Revenue	MR	MPL	Value of the marginal product of labor (per hour)
0	0	0
1	20	40	2	20	40
2	35	70	2	15	30
3	45	90	2	10	20
4	50	100	2	5	10
5	54	108	2	4	8
6	56	112	2	2	4
7	53	106	2	-3	-6

If wages = $8, the equilibrium will occur at a point where VMPL=W or VMPL is at least greater than wages of $8. This happens when the firm hires 5 units of labor and produces 54 units.

P=$1, W=$15
Number of workers	Total Output (per hour)	Total Revenue	MR	MPL	Value of the marginal product of labor (per hour)
0	0	0
1	20	20	1	20	40
2	35	35	1	15	30
3	45	45	1	10	20
4	50	50	1	5	10
5	54	54	1	4	8
6	56	56	1	2	4
7	53	53	1	-3	-6