Here is a schedule showing the amount of output of corn firm X can produce using
ID: 1198949 • Letter: H
Question
Here is a schedule showing the amount of output of corn firm X can produce using one fixed acre of land and different numbers of workers. This firm can sell all the corn they want at a price of $10 per bushel. The land costs them $100. Use
# of workers Marginal product of each worker
1 50
2 100
3 60
4 20
5 10
6 4
7 2
11) How much is the total product with 4 workers
12) if the wage is $40, how many workers should this firm hire to maximize profits?
13) If this firm hires the number of workers you answered for question 12, how much profits will they make
14) how much is TOTAL FIXED cost for this firm in the SHORT RUN ?
15a) how much is it in the long run
15b) why does worker 2 have a larger marginal product than worker 1 even though they have the same level of skill?
Explanation / Answer
Q11. Following table shows Total Product schedule of the firm –
No. of Workers
Marginal Product
Total Product
TP = MPn – MPn-1
1
50
-
2
100
150
3
60
210
4
20
230
5
10
240
6
4
244
7
2
246
As above Total product schedule show, the total product with 4 workers is 230 bushels of corn.
Q12. Following table shows the Marginal Revenue Product (MRP) schedule of firm
No. of Workers
Marginal Product
Marginal Revenue Product
MRP = MP * Price
1
50
500
2
100
1,000
3
60
600
4
20
200
5
10
100
6
4
40
7
2
20
A firm in order to maximize profit should hire that number of workers at which marginal revenue product of workers hired equals the wage rate.
If the wage rate is $40 then above stated Marginal Revenue Product schedule shows that wage rate is equal to MRP when 6 workers are hired.
So, this firm should hire 6 workers to maximize profit.
Q13. In order to maximize profit, firm should hire 6 workers (Q12).
Wage rate = $40
Total Labor Cost = 6 * $40 = $240
Total Fixed Cost = $100
Total Cost = Total Labor Cost + Total Fixed Cost = $240 + $100 = $340
Price per bushel = $10
Total product of 6 workers = 244 bushels
Total Revenue = Total Product * Price = 244 bushels * $10 = $2,440
Profit = Total Revenue – Total Cost = $2,440 - $340 = $2,100
The firm will make $2,100 as profit.
Q14. Total fixed cost in short-run pertains to expenses related to fixed factors. These expenses remain same irrespective of output produced in short-run.
It is mentioned that land quantity is fixed.
So, land is fixed factor.
Land cost is $100.
Thus, the Total Fixed Cost for this firm in short-run is $100.
No. of Workers
Marginal Product
Total Product
TP = MPn – MPn-1
1
50
-
2
100
150
3
60
210
4
20
230
5
10
240
6
4
244
7
2
246
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