Your enterprising uncle opens a sandwich shop that employs seven people.The employees are paid $32 per hour and a sandwich sells for $8. If the market for sandwiches is competitive, and your uncle is maximising his profit: a) What is the value of the marginal product of the last worker he hired? b) What is that worker's marginal product? c) Suppose that your uncle purchases a new machine that increases the marginal product of each worker. How will this affect the number of workers that he hires? Explain.
Question
Your enterprising uncle opens a sandwich shop that employs seven people.The employees are paid 8. If the market for sandwiches is
competitive, and your uncle is maximising his profit:
a) What is the value of the marginal product of the last worker he hired? b) What is that worker's marginal product? c) Suppose that your uncle purchases a new machine that increases the marginal product of each worker. How will this affect the number of workers that he hires? Explain.
Solution
a) The value of the marginal product of the last worker he hired:
In a competitive market, a profit-maximizing firm hires workers up to the point where the value of the marginal product of labor equals the wage rate. Therefore, the value of the marginal product of the last worker hired is equal to the wage rate, which is $32 per hour.
b) What is that worker's marginal product?
The marginal product of labor is the additional output that is produced when one more worker is hired, holding all other inputs constant. The value of the marginal product of labor is the marginal product of labor times the price of the output.
Given that the value of the marginal product of the last worker hired is 8, we can calculate the marginal product of labor as follows:
Marginal Product of Labor = Value of Marginal Product / Price of Output = 8 = 4 sandwiches per hour
So, the marginal product of the last worker hired is 4 sandwiches per hour.
c) Suppose that your uncle purchases a new machine that increases the marginal product of each worker. How will this affect the number of workers that he hires? Explain.
If the new machine increases the marginal product of each worker, it means that each worker can now produce more sandwiches per hour. This increases the value of the marginal product of labor (since it's the marginal product times the price of the output).
In a competitive market, a profit-maximizing firm hires workers up to the point where the value of the marginal product of labor equals the wage rate. Therefore, if the value of the marginal product of labor increases, your uncle will want to hire more workers until the value of the marginal product of the last worker hired again equals the wage rate.
So, the number of workers that your uncle hires will increase.
Similar Questions
Question 5 (HPW11.5, Problem 80, p. 527)A monopolist who employs m workers finds that they produce:𝑞 = 2𝑚(2𝑚 + 1) *&Units of product per day. The total revenue, r (in dollars), is given by:𝑟 = 50𝑞:1000 + 3𝑞a) What is the price per unit (to the nearest cent) when there are 12 workers?b) Determine the marginal revenue when there are 12 workersc) Determine the marginal-revenue product when m =12.Note: round your answers to 2 decimal places
Barbara has estimated the demand and marginal revenue for her product.They are P = 84 - 2Q (quantity) and MR = 84 - 4Q, respectively.She also experiences a constant marginal cost of $16.What is Barbara’s profit-maximising quantity and price?Question 4Answera.Q = 12; P = $50b.Q = 12; P = $40c.Q = 17; P = $50d.Q = 17; P = $40
Assume that a firm hires an additional employee. If the marginal product for that employee is greater than for the previous employee hired, it must be thatGroup of answer choicesall workers are not paid the same wage.the workers all perform the exact same set of tasks.all workers are paid the same wage.there are gains from specialization.the marginal product of labor is diminishing.
Suppose a monopolist’s profit-maximizing output is 400 units per week and that the firm sells its output at a price of $100 per unit. The firm has total costs of $8,000 per week. Assume the monopolist is maximizing its profit and earns $50 per unit from the sale of the last unit produced each week. Instructions: Enter your answers as a whole number. a. What are the firm's weekly economic profits? $ b. What is the firm's marginal cost? $ c. What is the firm's average total cost? $
Fill in the Blank QuestionFill in the blank question.In an imperfectly competitive market, a price accompanying each increase in output (total product) applies not only to the marginal of each successive worker but also to all prior output units that otherwise could have been sold at a(n) price.Need help? Review these concept resources.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.