A firm producing bottled water reports the following production ...

[tsand2]

A firm producing bottled water reports the following production information:
 
   of Workers Total Product
  (gallons of water per hour)
  0 0
  10 1750
  20 2750
  30 3550
  40 4150
  50 4550
  60 4750
 
  The bottled water sells in a competitive market at a price of 10 cents per gallon. The firm hires workers in a competitive labor market at a wage of 7 per hour. The firm is currently hiring 20 workers and is considering hiring another 10 . What would you recommend the firm do? Why?

Question 2

A firm producing compact discs reports the following production information:
 
   of Workers Total Product
  (boxes of CDs per hour)
  0 0
  1 125
  2 225
  3 305
  4 365
  5 405
  6 425
 
  The compact discs sell in a competitive market at a price of 0.20 per box. The firm hires workers in a competitive labor market at a wage of 12 per hour. The firm is currently hiring four workers and is considering hiring a fifth worker. What would you recommend the firm do? Why?

[Yixagurpuldink]

Answer to Question 1

I would suggest that the firm hire the third worker. The marginal productivity of the extra ten workers is 800 gallons of water per hour. This translates into 80.00 of MRP (800 x 10 cents). Since the firm is paying 7 per worker the marginal cost of hiring the ten additional workers if 70.00 . This makes it profitable for the firm to hire them.

Answer to Question 2

I would suggest that the firm not hire the fifth worker because his marginal revenue product will be 8 (40  0.20) and this is less than the market wage rate. Therefore, the firm would lower its profits if it hired the fifth worker.

[tsand2]

Correct answers!

[Yixagurpuldink]

Great! Please up vote