Question

Below is a table showing the production numbers for a chair factory (where the production numbers are based on chairs being produced per day).

Workers	Total Product (TP)	Average Product (AP)	Marginal Product (MP)	Value of the Marginal Product (VMP)
0	0	-	-	-
1			20
2	60
3		40
4	180
5		46
6	270
7	300
8		40
9			10
10			5

a) Fill in the missing numbers for the TP, AP and MP columns (round to the nearest whole chair)

b) In one sentence explain what the AP of 5 workers being 46 tells us.

c) In one sentence explain what the for MP of the 1^st worker being 20 tells us.

d) Given the fact that each chair produced in our factory can be sold at the market price of $20 per chair, fill in the VMP column (round to the nearest dollar).

e) In one sentence explain what your answer for VMP for the 4^th worker tells us.

f) If the market wage for workers doing manufacturing work (such as chair production) is $300 per day, determine the amount of workers this firm should hire to maximize its profit.

Explain your answer using VMP and the wage.

3. (8 points)

Declare whether each below is True or False. If you say False for any statement, you must explain clearly your reason for answering False in order to receive credit.

a) One characteristic of a Monopolistic Competitive Market is that one seller serves the entire market.

b) A firm in a Monopolistic Competitive Market has no power over its on price.

c) If a large numbers of firms are competing, then the market could be perfect competition or monopolistic competition.

d) Monopolies can make their customers pay any price the Monopolies want.

e) The only way for a firm in a Monopolistic Competitive Market to increase its sales is to lower its price.

f) Since Monopolies have no competition, they will not pay for advertising.

g) The market sets the price for Oligopolies.

h) Product Differentiation provides no benefit to society.

Answer 1

A & D.

Workers	Total Product	Average Product	Marginal Product (MP)	Value of the Marginal Product
	(TP)	(AP)		(VMP)
0	0	-	-	-
1	20	20	20	400
2	60	30	40	800
3	120	40	60	1200
4	180	45	60	1200
5	230	46	50	1000
6	270	45	40	800
7	300	42.86	30	600
8	320	40	20	400
9	330	36.67	10	200
10	335	33.5	5	100

B.

AP of 5 workers being 46 means that average number of chairs produced per worker per day is  46 when 5 workers are employed.

C.

MP of 20 for 1st worker means that when only 1 worker is used, 20 hairs per day is produced at 1 worker level.

D. Already done in the above table

E.

VMP of 4^th worker is $1200 that shows that addition of 4^th worker, will produce chairs having value of $1200.

F.

If market wage of workers is $300, then 8 workers should be employed.

Because, afterwards, VMP will be less than $300 and it will not maximize the profit. At 8th worker level, VMP is $400. So, by this level of VMP, 8 workers should be employed.

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