Question

George, the owner of a car wash is trying to decide on the number of people to employ based
on the following short–run production function:

Q = 6L – 0.5L2
Where Q = number of car washes per hour and L = number of workers.

a) Generate a schedule showing total product, average product and marginal product. (5 marks)

b) The price of a basic car wash is $50. How many workers should he hire if each worker is
paid $60/hour? (3 marks)

c) He is considering hiring students on a part–time basis for $40/hour, do you think he
should do so? Explain. (2 marks)

Answer 1

a.

Total product is defined as total quantity produce by a firm for a given quantity of input. Marginal product is defined as change in output resulting from a unit change in variable inputs. Average product is per unit of variable unit.

b.

The rule (MRP = MLC) guides a firm in its decision about how many units of a variable input should it use for its fixed input. The rule said that the firm should employ a particular input up to the point at which the revenue contribution of the additional input is equal to the cost incurred by the firm to employ this particular input.

Firm hires 5 workers.

c.

The rule (MRP = MLC) guides a firm in its decision about how many units of a variable input should it use for its fixed input. The rule said that the firm should employ a particular input up to the point at which the revenue contribution of the additional input is equal to the cost incurred by the firm to employ this particular input.

Firm still hires 5 workers. So owner of car wash will be indifferent with the employment of student or people.