Below is the production table for Martha’s wine, mentioning the units of labour

Question

Below is the production table for Martha’s wine, mentioning the units of labour used with the number of wine bottles produced per day. This firm is producing in a perfectly competitive market. The selling price of each wine bottle for this firm is $8, the wage rate of labour per day is $48 and the total fixed cost is $ 100 per day.

a) Complete the table above.

b) If the firm is operating under profit maximizing condition, what will be the number of labourers that this firm will hire? Why?

c) Calculate the Total Variable costs and Total costs incurred by the firm at the number of labour input from part (b). Assume that labour is the only variable cost for this firm.

labour per day(L) number of wine bottles produced perday(Q) marginal revenue(MR) marginal product(MPl) marginal revenue product(MRPl) 0 0 1 16 2 23 3 29 4 34

Explanation / Answer

a)

b) the firm shall employ3 units of labour as at this employment MR=MC.

c)

labour per day(L) number of wine bottles produced perday(Q) marginal revenue(MR) marginal product(MPl) marginal revenue product(MRPl) 0 0 0 0 0 1 16 128 16 2048 2 23 56 7 392 3 29 48 6 288 4 34 40 5 200

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