(TCO C) You have been hired to manage a small manufacturing facility which has c
ID: 1225272 • Letter: #
Question
(TCO C) You have been hired to manage a small manufacturing facility which has cost and production data given in the table below.
No. of workers--------Total Labor Cost------Output-------Total Revenue
---------1----------------------$100----------------10--------------$300
---------2----------------------$200----------------30--------------$450
---------3----------------------$300----------------60--------------$600
---------4----------------------$400----------------80--------------$690
---------5----------------------$500----------------90--------------$770
---------6----------------------$600----------------95--------------$820
---------7----------------------$700----------------97--------------$850
a. What is the marginal product of the third worker?
b. What is the marginal revenue product of the sixth worker?
c. What is the marginal cost of the fourth worker?
d. Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer
Explanation / Answer
a. Marginal product of worker is determined by changes in total output divided by changes in no. of workers.
So, marginal product of third worker is (60 - 30) / (3 - 2) = 30.
Here 60 is output associated with 3rd worker and 30 is for 2nd worker. The difference is divided by changes is no. of worker i.e. the difference between no. of workers from 2 to 3.
b. Marginal revenue product of worker is determined by changes in total revenue divided by changes in no. of workers.
So, marginal revenue product of sixth worker is ($820 - $770) / (6 - 5) = $50.
c. Marginal cost of worker is determined by changes in total labor cost divided by changes in no. of workers.
So, marginal cost of fourth worker is ($400 - $300) / (6 - 5) = $100.
d. According to marginal analysis of labor, a firm will hire that much amount of worker, at which its marginal revenue product is greater than or equals to marginal cost of labor.
In this case the firm will hire three workers. Because upto this level of worker marginal revenue product of labor is higher than its marginal cost. After this point, MC exceeds the MRP of that labor. Which is shown in table below.
No. of worker Total labor cost($) Marginal cost($) Total revenue($) Marginal product Revenue($) 1 100 - 300 - 2 200 100 450 150(> Marginal Cost) 3 300 100 600 150(> Marginal Cost) 4 400 100 690 90(< Marginal Cost) 5 500 100 770 80(< Marginal Cost) 6 600 100 820 50(< Marginal Cost) 7 700 100 850 30(< Marginal Cost)Related Questions
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