Standale Plastics Produces Plastic Dustpans, Using a Semi-Automated System of Five

Question

Examlex · Accepted Answer

The Answer is a.The last row of the accompanying table lists the total product Q produced perday and marginal product of labor, MP_L, for 5 workers, according to the equations: Q =300L^.6and MP_L = ∂Q/∂L = (0.6)(300)(L)^-.4.

\begin{array} { | c | c | c | } \hline \mathrm { L } & \mathrm { Q } & \mathrm { MP } _ { \mathrm { L } } \\hline 1 & 300 & 180 \\hline 2 & 455 & 136.4 \\hline 3 & 580 & 116 \\hline 4 & 689 & 103.4 \\hline 5 & 788 & 94.7 \\hline\end{array}

b.Optimal use of an input requires that the marginal revenue product of labor equals the marginal cost of labor: MRP_L = (MR)(MP_L) = MC_L. Given that MRP_L = $1 and MC_L = $125, it follows that MP_L = $125. The firm should use two workers because the marginal product of a third worker falls short of the threshold value of $125. Total output is 455 units.
c.The new threshold value for MP_L becomes: ($1.25) × (MP_L) = $125 or MP_L = 100 units. The increase in price prompts the firm to increase its labor to four workers.

Standale Plastics Produces Plastic Dustpans, Using a Semi-Automated System of Five

Definitions: