The Fine Paper Company is working under perfect competition in both factor marke
ID: 2428798 • Letter: T
Question
The Fine Paper Company is working under perfect competition in both factor market and product market. The following table shows the relationship between the number of workers Fine hires and total output.
Labor Input
(per day)
Total Output
(per day)
f. If the selling price of paper is $10 per box, answer the following questions:
i. What is the (MRP) marginal revenue product of each worker?
ii. How many workers will Fine hire if the wage rate is $100 per day?
iii. How many workers will Fine hire if the wage rate is $75 per day?
Labor Input
(per day)
Total Output
(per day)
Explanation / Answer
Marginal product of labor (MPL) = Change in output (Q) / Change in labor (L)
(i) MRPL = MPL x Output price = MPL x $10
(ii) Firm will hire workers up to the point where MRPL= Wage rate. If the equality does not hold, MRPL will be greater than wage rate. From above table, value of MRPL closest to (and higher than) wage rate of $100 is $120 when number of workers is 2.
(iii) Firm will hire workers up to the point where MRPL= Wage rate. If the equality does not hold, MRPL will be greater than wage rate. From above table, value of MRPL closest to (and higher than) wage rate of $75 is $90 when number of workers is 3.
L Q MPL MRPL 0 0 0 1 15 15 150 2 27 12 120 3 36 9 90 4 43 7 70 5 48 5 50 6 51 3 30Related Questions
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