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IV. (15 Points) Given: • A schedule of output amounts that can be produced per various units of labor. • A dollar rate for ea

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Answer #1

a.

Total Labor (units) Labor Cost (per unit) Total Output Marginal Product of Labor (MPL) Marginal Revenue (Price/Unit) Marginal Revenue Product of Labor (MRPL)
0 15 0 - 3 -
1 15 15 15 3 45
2 15 35 20 3 60
3 15 45 10 3 30
4 15 51 6 3 18
5 15 40 -11 3 -33

Formulae used:

Marginal Product of Nth unit of labor = Total output of N units of labor - Total output of (N-1) units of labor

Marginal Revenue = Price

Marginal Revenue Product of Nth unit of labor = Marginal Product of Nth unit of labor * Marginal Revenue

b.

Employing an additional unit of labor increases the profit of the firm as long as the marginal revenue product is greater than or equal to the wage rate or labor cost per unit.

From the above table, it can be observed that the MRPL is greater than or equal to the labor cost(i.e., $15) up to an output of 51 units and employment level of 4 labor units.

Hence, the firm should employ 4 labor to maximize its profit.

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