Question

2. The table below shows the total production for varying numbers of hours worked producing yo-yos. The firm sells its product and hires its workers in competitive markets. Price of Yo-Yos Number of Number of Hours Worked Yo-Yos Produced Wage Rate per Hour (S) 10 10 11 10 170 78 10 12 13 14 10 10 88 90 15 10 (a) Determine the marginal product of labour from hiring the (i) 11th worker, (ii) the 12th worker, (iii) the 13th worker, (iv) the 14th worker, and (v) the 15th worker. (b) Since the firm is selling yo-yos in a perfectly competitive market, the firm's manager contends that they should shut down immediately because the wage is greater than the price of yo-yos. Do you agree? If so, why? If not, determine how many workers the firm should hire to maximize profits? (C) The Covid-19 pandemic creates an increase in the demand for yo-yos for kids quarantined at home. All else equal, how is this increase in demand for yo-yos likely to change the firm's employment of labour?

Answer 1

b. We do not agree with the manager. This is because the firm is earning profits if it employs 14 units of labor to produce 88 units of output to maximise profits.

c. Increased demand for the product is likely to raise the firm's output produced. Due to this, we would need more labor working in the firm. (This will be profiable for the firm as increase in demand will raise its price as well).

00_ DO 21a) Margind product of lason = change in Output - change in lason input Thus, at 11th worker 2 MP = 70-60 = 10 lIrlo Al 12th worker MPL 78-10 8 12-11 At 13th worker ) Me . 84-78 = 6 13-12 At 14th worker mp 88-84 - 4 11-13 At 15th worker a) MP a 90-88 1-IM o - mo. - worked O sayte (b) we have No of hours output Wage lure | Tord Rerere Totd Profit I ý (wy (P) (P.ys (W. 4 TR-TC Go To 5 L 300 1100 1200 70 10 5 1 350 Illo 240 - 78 105... 390 I 120 270 84 . 10 .b . 420 88 10 5 .440 | 140 | 30 90 :10 .51450 12 -13 130 1290