You have been hired to manage a small manufacturing facility whose cost and prod

Question

You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below.


Workers  Cost Output Revenue
1             $300     50        $350
2               600   140          675
3               900    220       1120
4             1200    270       1570
5             1500    300       1865
6             1800    315       2070
7             2100    320       2170

(a.) What is the marginal product of the second worker?

(b.) What is the marginal revenue product of the fourth worker?

(c.) What is the marginal cost of the first worker?

(d.) Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer.

Explanation / Answer

a. MP = dQ/dN where N = number of workers; dQ = change in output from 1 worker to 2. dN =2-1=1

    MP of second worker = 140-50/1 = 90

b. MR = dTR/dQ. dTR = 4 worker's total rev - 3 worker's total rev; dQ = Q(4) - Q(3)

   MR of fourth worker = (1570-1120)/(270-220) = 450/50 =9

c. MC = dTC/dQ where dTC = 300

MC of first worker = 300/50 = 6

d. N would depend on where MR=MC;

i.e. the row where MR's numbers = MC's.

So, N = 5

Cost Output Revenue          MR      MC 1 $300 50 $350 $7 $6 2 600 140 675 3.611111 3.333333 3 900 220 1120 5.5625 3.75 4 1200 270 1570 9 6 5 1500 300 1865 9.833333 10 6 1800 315 2070 13.66667 20 7 2100 320 2170 20 60

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