You have been hired to manage a small manufacturing facility whose cost and prod

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       Labor Cost       Output      Total Revenue
       1                         $550             100                          $170
       2                         1100             108                            350
       3                         1650             114                            800
       4                         2200             119                          1270
       5                         2750             123                          1600
       6                         3300             125                          1700
       7                         3850             126                          1750
 What is the marginal product of the third worker?
 What is the marginal revenue product of the second worker?
 What is the marginal cost of the fourth worker?
 Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer.

Explanation / Answer

MP of third worker is 114-108=6 MR of second worker is 350-170=230 MC of 4th worker is 2200-1650=550 Set MR=MC and in this case, the 7th worker still produces a positive number of output marginally. Therefore, we will hire exactly 7 workers. Hope this helps

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