4. The Chocoholic Company produces chocolate cakes, selling its product in a per

Question

4. The Chocoholic Company produces chocolate cakes, selling its product in a perfectly- competitive market. The market price (P) for a chocolate cake is $4. The table below shows total hourly production (O) for varying amounts of workers (L). Labour (L) Ouput(O Price (P) Marginal Marginal Product (MP) Revenue Product MRP) 72 60 48 36 24 0 4. 4 4 18 15 12 18 45 54 60 63 4 4 4 a. (3 points) Fill in the table for price, marginal product (MP), and marginal revenue product (MRP). Remember to put marginal items in between units. b. (2 points) If the market wage is $30 per day, to maximize profit, the Chocoholic Compa should hire 4 workers.

Explanation / Answer

Answer
b)
the firm employ input up to marginal revenue product equal to the wage
MRP=wage or closest lower wage

because the profit is maximum at MR=MC and the MR=MC is possible only when the firm hire the worker at MRP=wage or the closet lower wage
her the MRP of the 4th worker is $36 and wage is 30 so employing 4 workers will have the marginal profit of $6 but if the firm employe 5th worker then the marginal rpfit=30-24=-6 means the profit will decrease by $6

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