Ms. Smith, the owner and manager of the Clear Duplicating Service located near a

Question

Ms. Smith, the owner and manager of the Clear Duplicating Service located near a major university, is contemplating keeping her shop open after 4 P.M. and until midnight. In order to do so, she would have to hire additional workers. She estimates that the additional workers would generate the following total output (where each unit of output refers to 100 pages duplicated). If the price of each unit of output is $10 and each worker hired must be paid $40 per day, how many workers should Ms. Smith hire

Explanation / Answer

Economy would hire workers until wage=value of marginal product(VMP)

value of marginal product=price per unit of output multiply marginal product

This is true at 40( price=VMP) at labor unit=5

so 5 labor units should be hired.

Workers hired Total product Marginal product Value of marginal product 0 0 - - 1 12 12 120 2 22 10 100 3 30 8 80 4 36 6 60 5 40 4 40 6 42 2 20

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