Question

Labor Demand Homework . Unanswered Consider the following data taken from a Florida orange grove (farm) where the price oranges is $4.00 per bushel and the price per worker is $3000 (per month). How much the firm willing to pay for the 3rd worker? Workers Output (bushels) 400 1600 2600 3400 4000 4400 4600 Numeric Answer:

Answer 1

The company will hire the workers up to that unit of labour for which the Marginal revenue product of labour will be equal to marginal factor cost or MC.

MRPL = MR × MPL

MPL = change in output /Change in labour

MR = change in TR /Change in output

Total revenue = Price × Quantity

Using these formula we can develop the following table

LQTR MR MPL MRPL TCMC 0 0 0 - - - 10 1/ 400 1600 4 400 1600 3000 3000 12 1600 6400 4 1200 4800 6000 3000 |32600 | 104004 1000| 4000 9000 3000 4 3400 13600 4 800 3200 12000 3000 54000 16000 4 600 2400 15000 3000 6 4400 17600 4 400 1600 18000 3000 7 4600 18400 4 200 800 210003000

For hiring 3rd unit of labour the firm is willing to pay $ 4,000. (Refer the MRPL column).

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