Question

2. The table below represents the production function for Hawg Wild, a small catering company special- izing in barbecued pork. The numbers in the cells represent the number of customers that can be served with various combinations of labor and capital. Labor (L) 1 2 3 4 5 6 205 1 100 132 2 152 200 235 264 289 310 Capital (K) 3 193 255 300 337 368 396 4 230 303 357 400437 470 5 263 347 408 457 500 538 293 387 455 510 558 600

Answer 1

Marginal product of the smoker = 387 - 347 = 40

Explanation:

5 units of capital and 2 workers serves: 347 customers

6 units of capital and 2 workers serves: 387 customers

So, the additional customer served due to the addition 1 more capital is 387 - 347 = 40 customers which is called marginal product.

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Marginal product of the worker = 408 - 347 = 61

Explanation:

5 units of capital and 2 workers serves: 347 customers

5 units of capital and 3 workers serves: 408 customers

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Now marginal cost of a smoker is $8 while marginal cost of a worker is $12

If it hire another worker, 61 customers will be served at $12, ( 61/12 = 5.083 - marginal product per dollar)

while if it buy another smoker, 40 customer will be served at $8, ( 40/8 = 5 - marginal product per dollar)

The most cost- efficient choice for Billy is to hire another worker.