Question

1. Deciding how many workers to hire: Assume that the initial price of shoes in this example is $30 per pair. What is the marginal revenue product for each worker? Fill in the following chart and graph each function..

No of workers	0	1	2	3	4	5	6	7
Total Output Of shoes	0	9	19	27	33	36	38	37
Marginal Output of shoes
Marginal Revenue Product

1. If it costs the firm $90 per worker per day, how many workers would be hired? Why?
2. If the price of shoes went up to $45 per pair how many workers would be hired?
3. If labor costs went up to $180/day and the price of shoes was $30 each, how many workers would be hired?

Answer 1

No. of workers	0	1	2	3	4	5	6	7
Total output of shoes	0	9	19	27	33	36	38	37
Marginal output of shoes	-	9 -0 = 9	19 - 9 =10	27 - 19 = 8	6	3	2	-1
Marginal revenue product	-	9*30 = 270	10*30 = 300	8*30 = 240	180	90	60	-30

a) Workers should be hired to the point where VMPL ( or Marginal revenue product)  = Labor cost per unit = $90.

This shows true when the no. of worker = 5

b) If price of shoes went upto $45

No. of workers	0	1	2	3	4	5	6	7
Marginal revenue product ( at $45)	-	405	450	360	270	135	90	-45

Workers should be hired to the point where VMPL = Labor cost per unit = $90

This shows true when no. of workers = 6

c) Workers should be hired to the point where VMPL = Labor cost per unit = $180

This shows true when no. of workers = 4 (in thetable of part (a))