Question

Stephanie is considering how many workers she wants to hire to produce earrings for her business. She sells each pair of earrings she produces for $7. The table below shows the productivity of the workers that Stephanie might hire. Assume this is a perfectly competitive market. umber. Instructions: Enter your answers as a whole number. a. Fill in the "Marginal Product," "Total Revenue," and "Marginal Revenue Product" columns Stephanie's Earring Shop and Revenues Labor Total Product (pairs of (workers) earrings) / Marginal Product pairs of Orrings) Price (dollars) Total Revenue (dollars) Marginal Revenue Product (dollars) 26 49 b. If the wage rate is $42, how much labor does Stephanie demand? < Prev 14 of 15 Next >

Answer 1

Labor	Total Product	Marginal product	Price	Total Revenue	Marginal Revenue Product
0	0	NA	7	0	NA
1	14	14	7	98	98
2	26	12	7	182	84
3	35	9	7	245	63
4	41	6	7	287	42
5	45	4	7	315	28
6	48	3	7	336	21
7	49	1	7	343	7

Note: Marginal product = (change in total product) / (change in labor)

Total Revenue = Total product * Price

marginal revenue product = (marginal revenue) * (Marginal Product)

Marginal revenue product = Price * Marginal Product [Marginal revenue = price. because price is constant]

(b) to maximize profit, the firm hires labor at the point where MRP = Wage rate.

(MRP is marginal revenue product)

MRP = Wage rate = $42 corresponding to 4 units of labor.

Hence 4 units of labor will be demanded at a wage rate of $42.

Answer: 4 units of labor.