You have been hired to manage a small manufacturing facility whose cost and prod
ID: 1179316 • Letter: Y
Question
You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below.
No. of workers Total Labor Cost Output Total Revenue
1 $145 100 $190
2 290 105 480
3 435 111 840
4 580 120 1320
5 725 125 1650
6 870 129 1780
7 1015 131 1800
(2 points) What is the marginal product of the third worker?
(2 points) What is the marginal revenue product of the fourth worker?
(2 points) What is the marginal cost of the sixth worker?
(4 points) Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer. (
Explanation / Answer
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What is the marginal product of the second worker?
The marginal product of the second worker is 8, the amount output increases when employment increases from 1 to 2 workers (108 minus 100).
What is the marginal revenue product of the fourth worker?
The MRP of the fourth worker is $320, the amount total revenue increases when the fourth worker is hired ($1470 minus $1150).
What is the marginal cost of the fifth worker?
The MC of the fifth worker is $150, the amount total labor cost increases when the fifth worker is hired ($750 minus $600).
Based on your knowledge of marginal analysis, how many workers should you hire? Explain your answer.
The firm should hire four workers. Hiring a fifth worker would reduce profit because the MC of the fifth worker ($150) exceeds the MRP of the fifth worker ($130). This is also true for the 6th and 7th workers.
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