Question

Problem 3 Markets for Factors of Production (20 points)

Areandina’s Coffee Shop hires workers to make their latté coffees. The market for latté coffee is perfectly competitive, and latté coffees sell for $4.00 each. The labour market is competitive, and the wage rate is $40 per day. Table 1 shows the workers’ total product, TP.

Workers	Latté Coffees produced per day
1	7
2	21
3	33
4	43
5	51
6	55

Table 1

1. Calculate the marginal product of hiring the fourth worker.

2. Calculate the value of the marginal product of the fourth worker

3. How many workers will Areandina’s hire to maximize profit?

4. How many latté coffees per day will Areandina’s produce to maximize profit?

5. If the price of latté coffee rises to $5, how many workers will Areandina’s hire?

Answer 1

que wonten TR TP 7. TC yo Po 120 2 mp 7 14 12 10 11 3 4 S 6. 33 42 SI 55 84 132 172 204 220 200 240 9 0 Jo 드 3 MP from 4rth worker hirpay is UMP (Price) (MP) (40) (10) 400 Now Profit TR-TC and profit i wheth Areandina Hires Hires 4 worken 6 She will Produce.. 43 units ☺ cs), then she will worken max efice nire 5