Another interesting application of MARGINAL ANALYSIS is the calculation of how m
ID: 1091798 • Letter: A
Question
Another interesting application of MARGINAL ANALYSIS is the calculation of how many workers to hire. As you might guess we compare the marginal revenue to the marginal cost to get the answer. Here's an example for you to work on just answer one question and then let the next student answer, Make sure to show any calculations that you do: You have been hired to manage a small manufacturing facility which has cost and production data given in the table below. No. of workers--------Total Labor Cost------Output-------Total Revenue ---------1----------------------$100----------------10--------------$300 ---------2----------------------$200----------------30--------------$500 ---------3----------------------$300----------------60--------------$600 ---------4----------------------$400----------------80--------------$690 ---------5----------------------$500----------------90--------------$770 ---------6----------------------$600----------------95--------------$820 ---------7----------------------$700----------------97--------------$850 a. What is the marginal product of the third worker? b. What is the marginal revenue product of the sixth worker? c. What is the marginal cost of the fourth worker? d. Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer.
Explanation / Answer
No. of workers
Total labor cost
Output
Total revenue
Marginal Revenue
Marginal Cost
1
$ 100
10
$ 300
2
$ 200
30
$ 500
$ 200
$ 100
3
$ 300
60
$ 600
$ 100
$ 100
4
$ 400
80
$ 690
$ 90
$ 100
5
$ 500
90
$ 770
$ 80
$ 100
6
$ 600
95
$ 820
$ 50
$ 100
7
$ 700
97
$ 850
$ 30
$ 100
PART A:
Marginal product of third worker = Output of three workers
No. of workers
Total labor cost
Output
Total revenue
Marginal Revenue
Marginal Cost
1
$ 100
10
$ 300
2
$ 200
30
$ 500
$ 200
$ 100
3
$ 300
60
$ 600
$ 100
$ 100
4
$ 400
80
$ 690
$ 90
$ 100
5
$ 500
90
$ 770
$ 80
$ 100
6
$ 600
95
$ 820
$ 50
$ 100
7
$ 700
97
$ 850
$ 30
$ 100
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