Question

A profit-maximizing firm operates in purely competitive product and resource markets, with the following resource and production schedules.
WorkersTotal Production 100 190 270 340 400 450 490 520 4 6

The product price is $10 per unit and the cost per worker is $600.

How many workers will the firm employ?

a) 4

b) 5

c) 6

d) 7

Answer 1

Answer:

b) 5

Workers     Total Production

1                      100

2                      190

3                       270

4                       340

5                       400

6                        450

7                        490

8                        520

Explanation:

Profit is maximized when marginal cost is equal to marginal revenue.

i.e MC=MR.

Workers     Total Production  TC        MC           TR           MR

                                                   $            $            $              $

1                        100                 600           -          1000           -    

2                        190                1200       600       1900          900

3                        270               1800        600       2700         800

4                        340               2400       600        3400        700

5                        400              3000       600         4000       600

6                        450             3600        600          4500        500

7                        490             4200        600          4900        400

8                        520             4800        600          5200       300

Where TC=Total Cost=worker multiply by cost per worker=$600*1=$600; etc.

MC=Marginal Cost=TC minus preceding TC=$600.

TR=Total Revenue=Total Production multiply by production price=$100*$10=$1,000, etc.

MR=Marginal Revenue=TR minus preceding TR=$1900-$1,000=$900, etc.

Answer 2

Answer:

b) 5

Explanation:

W TP MP MRP

1 100  

2 190 90 900

3 270 80 800

4 340 70 700

5 400 60 600

6 450 50 500

7 490 40 400

8 520 30 300

the marginal product of n labor = (total product of n labor - the total product of p labor)/(n-p)............(n>p)

Marginal revenue product = marginal product*price

the firm employ input up to marginal revenue product equal to the wage

MRP = wage or closest lower wage

where W = 5

the firm will higher 5 workers.