Production data for Bob’s Bicycle Factory are as follows: Other than wages, Bob

Question

Production data for Bob’s Bicycle Factory are as follows:

Other than wages, Bob has costs of $100 (for parts and so on) for each bike assembled.

Instructions: Enter your responses as integer values.

a. Bikes sell for $130 each. Find the marginal product and the value of the marginal product for each worker. Don’t forget to consider Bob’s cost for parts.

b. Complete the following table showing Bob’s demand curve for labor.
    

c. Complete the following table showing Bob’s demand curve for labor if the bikes sell for $140 each.

d. Complete the following table showing Bob’s demand curve for labor if worker productivity increases by 50 percent and bikes sell for $130 each.

Number of Workers Bikes assembled per day 1 10 2 18 3 24 4 28 5 30

Explanation / Answer

(a)

Marginal product is the difference between successive outputs.

Value of marginal product, VMPL = Price x marginal product [Note: VMPL depends of product price and not on costs or profit]

(b)

In equilibrium, VMPL = w (Wage rate). The demand schedule can be drawn accordingly.

(c) If price = $140, then VMPL = MPL [From part (1)] x $140

(d) If productivity increases by 50%, MPL at each level increases by 50%. The revised data table as follows.

Number of workers Marginal product Value of the marginal product
for each worker 1 - $ 2 8 $1,040 3 6 $780 4 4 $520 5 2 $260

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