7. Refer to the table above. a. What is the marginal product of labor for the fi

Question

7. Refer to the table above.
a. What is the marginal product of labor for the fifth worker? (1 pt.)
b. If the market wage for each worker is $100 per day, how many workers
will the company hire? (1 pt.)
c. If the market wage for each worker rose from $100 to $130 per day, how
many workers would the firm hire? (1 pt.)
d. If there is competition from new immigrants that lowers the market wage
for each worker from $100 to $75 per day, how many workers would the
firm hire? (1 pt.)

Number workers (daily) Total Revenue ($) 3 1,350 4 1,580 5 1,760 6 1,885 7 1,965

Explanation / Answer

a.

Marginal product of labor for the fifth worker= Output by five workers - Output by 4 worker

Marginal product of labor for the fifth worker= 1760 – 1580 = $180

b.

Since, MPL for 7th labor is lower than the marginal cost of 7th labor ($100). Also, firm is earning maximum profit if 6 number of workers are employed. Thus, firm will hire only 6 workers.

c.

Marginal cost of labor for 6th worker ($130) is higher than the MPL of 6th worker, So firm will hire only five workers. Also, at five number of workers, firm is earning maximum profit. Thus, firm will only hire 5 number of workers.

d.

Firm will employ all 7 workers because Profit is maximized when all 7 workers are being used. Also, for all workers, MPL is higher than the MC of labor.

Number workers (daily) Total Revenue ($) Total cost @ $100 / worker Net Benefit Marginal Productivity of Labor 3 1,350 300 1,050 4 1,580 400 1,180 230 5 1,760 500 1,260 180 6 1,885 600 1,285 125 7 1,965 700 1,265 80

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