Table 11-5 Number of Workers Output (boxes) Marginal Product of Labor Office Ren
ID: 1193681 • Letter: T
Question
Table 11-5
Number of Workers
Output (boxes)
Marginal Product of Labor
Office Rent (dollars)
Labor Cost (dollars)
Total Cost (dollars)
0
0
--
1
220
400
200
2
250
800
3
680
4
160
1,200
5
940
1,000
6
980
1,600
Refer to Table 11-5. Suzette's Fancy Packaging subcontracts with Sunshineland Pecans to box dried fruit and nuts for Suzette's mail order business. Suzette rents space for her factory for $400 a week in a nearby strip mall. She can hire temporary workers for $200 a week. Table 11-5 above shows her output and cost data. Use the table to answer questions a-e.
a. Complete the table.
b. In the last week of summer Suzette closes her business to go on a family vacation. What are her costs during that week?
c. In one week Suzette exactly breaks even. If her revenue for the week is $1,200, how many boxes of fruit and nuts did she produce?
d. Judging from the marginal product of labor data, would you say that Suzette had to settle for increasingly unproductive workers? Explain your answer.
e. Suzette has received an order for 1,500 boxes of nuts per week for the next 3 months. If she expects the trend in the marginal product of labor will continue in the same direction, what do you think she should do? Should she not commit until she can move to a larger space or should she just hire more workers? Explain your answer.
Number of Workers
Output (boxes)
Marginal Product of Labor
Office Rent (dollars)
Labor Cost (dollars)
Total Cost (dollars)
0
0
--
1
220
400
200
2
250
800
3
680
4
160
1,200
5
940
1,000
6
980
1,600
Explanation / Answer
(a) Office rent is a fixed cost. So, whatever be the level of output, it will remain same.
Per worker cost is $200. So, labor cost can be calculated by multiplying $200 by number of workers hired.
Total cost at each level of output can be calculated by adding office rent and labor cost for each level of output.
Following is the complete table –
Number of Workers
Output
(boxes)
Marginal product of labor
Office rent
(Dollars)
Labor cost
(Dollars)
Total cost
(Dollars)
0
0
-
400
-
200
1
220
220 – 0 = 220
400
200
600
2
250 + 220 = 470
250
400
400
800
3
680
680 – 470 = 210
400
600
1,000
4
680 + 160 = 840
160
400
800
1,200
5
940
940 – 840 = 100
400
1,000
1,400
6
980
980 – 940 = 40
400
1,200
1,600
(b) Even when output produced is zero, fixed cost has to be paid for.
In case of Suzette, rent paid for factory space is a fixed cost.
So, even if, Suzette keeps her business temporarily close, she has to pay the rent.
Thus, in the last week of summer Suzette closes her business to go on a family vacation then her costs during that week is $400.
(c) Break-even happens when total revenue is equal to total cost.
Total revenue for the week is $1,200.
As table in part (a) shows that total cost is $1,200 for the week when 840 boxes were produced.
Thus, at the production of 840 boxes, total cost becomes equal to total revenue and firm breaks even.
So, in the week, when Suzette is exactly breaks even and her total revenue for the week was $1,200, she was producing 840 boxes.
(d) Marginal product of labor implies the output produced by each additional worker hired.
As table in part (a) shows that marginal product of labor is declining.
This means each new worker hired is producing less than the previously hired worker.
In other words, each new worker hired is less productive than the previously hired worker.
So, judging from the marginal product of labor data, it can safely be said that Suzette had to settle for increasingly unproductive workers.
(e) Table in part (a) clearly indicates that marginal product of labor is continually declining and looking at its rate of decline, it can safely be assumed that hiring additional workers will result in marginal product becoming negative.
So, if Suzette tries to increase the production to 1,500 boxes per week only by hiring more workers then in such case (looking at the decline of marginal product) it would safely be concluded that marginal product will turn negative even before reaching the production target (1,500 boxes per week) and in such case total output instead of increasing actually decreases.
So, best scenario for Suzette is not to commit until she can move to a large space.
This will help her in expanding her scale of production which can result in lower average cost and more profit.
Number of Workers
Output
(boxes)
Marginal product of labor
Office rent
(Dollars)
Labor cost
(Dollars)
Total cost
(Dollars)
0
0
-
400
-
200
1
220
220 – 0 = 220
400
200
600
2
250 + 220 = 470
250
400
400
800
3
680
680 – 470 = 210
400
600
1,000
4
680 + 160 = 840
160
400
800
1,200
5
940
940 – 840 = 100
400
1,000
1,400
6
980
980 – 940 = 40
400
1,200
1,600
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