Question

In: Economics

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

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?  

__________________________

Solutions

Expert Solution

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

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