The following table shows the production function for a bicycle manufacturer: La

Question

The following table shows the production function for a bicycle manufacturer: Labor (# of workers) Number of Bicycles Marginal roduct Marginal Revenue 2 3 4 5 10 12 13 3 2 a) Suppose that the weekly wage is $850, the marginal labor cost of the second worker per week is $ b) Suppose that the price of a bicycle is $450 Instruction: Fill in the values for the marginal revenue in the table above. c) If the price per bicycle is $450 and the weekly wage is $850, in order to maximize profit the bicycle manufacture will employworkers. d) If the price per bicycle drops to $300, in order to maximize profit the number of employed workers wil (Click to select

Explanation / Answer

a. When the second worker is hired, he is paid a wage of $850. Marginal labour cost is the additional cost incurred by hiring another unit of labour. So the marginal labour cost is $850.

b. Total revenue = price * output.

Marginal revenue = change in TR/change in output.

c. A firm would hire workers upto a point where the value of marginal product of labour equals the wage. VMPL = marginal product * price of the output.

There is no unique point where VMPL = w, but the nearest value is 4 units of workers.

d. Decrease.

After the price fall, the VMPL = w nearest value is aat 3 units of workers, the firms would employ less.

No of bicycles P TR MR 3 450 1350 450 7 450 3150 450 10 450 4500 450 12 450 5400 450 13 450 5850 450

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