Thayer Corporation. is a major defense contractor, producing artillery shells fo
ID: 1189431 • Letter: T
Question
Thayer Corporation. is a major defense contractor, producing artillery shells for the Marine Corps landing craft. A recent study of production over the past year shows the following relationship between labor inputs and output:
Month Labor Output
1 10 450
2 9 440
3 2 300
4 5 375
5 8 428
6 6 395
7 7 413
8 1 270
9 4 353
10 3 328
a. Prepare a table that shows the average and marginal product of labor for Thayer, over the range of labor inputs indicated above.
b. The Marine Corp has agreed to buy an unspecified number of shells from Thayer at a price of $2 per shell. Labor costs are $38 per hour including fringe benefits. How many shells should Thayer produce, and how much labor should it hire?
Explanation / Answer
Average product is calculated as Output/labor units
Marginal product of labor is calcuated as (Total output n - Total output n-1) / (labor n- Labor n-1)
(A) The following table shows avearge and margianl product at each output level:
(b) he firm shoudl hire where the product of marginal labor and marginal revenue equals wage rate, 38. The follo9wing table shows that optimal point is 7 units of labor where MRPL is nearest to wage 38.
Labor(L) Output(Q) Average product(Q/L) Marginal Product 10 450 45 9 440 48.88888889 10 2 300 150 20 5 375 75 25 8 428 53.5 17.66666667 6 395 65.83333333 16.5 7 413 59 18 1 270 270 23.83333333 4 353 88.25 27.66666667 3 328 109.3333333 25Related Questions
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