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Labor demand Homework. Unanswered Consider the following data taken from a Florida orange grove (farm) where...


Labor demand Homework. Unanswered Consider the following data taken from a Florida orange grove (farm) where the price of ora
Labor demand Homework. Unanswered Consider the following data taken from a Florida orange grove (farm) where the price of oranges is $4.00 per bushel and the price per worker is $3000 (per month). What would be a correct guess how how many workers would be hired by the farm? Workers Output (bushels 400 1600 2600 3400 4000 4400 4600 Numeric Answer: 4 You are incorrect Answered - Incorrect 2 attempts left. Change your responses to resubmit
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Answer #1
Workers Output (Bushels) Marginal Product of labor (MPL) Value of marginal product of labor (VMPL)
0 0 ---- ------
1 400 400 1600
2 1600 1200 4800
3 2600 1000 4000
4 3400 800 3200
5 4000 600 2400
6 4400 400 1600
7 4600 200 800

MPL = change in Output / change in workers

VMPL = MPL * Price of output.

A firm will hire the workers till VMPL is higher than the wage rate or VMPL = Wage rate.

We can see that till 4 units of worker, VMPL is higher than wage rate of $3000.

It means firm should hire 4 workers.

Alternative method

Workers Output (Bushels) TR TC Profit
0 0 0 0 0
1 400 1600 3000 -1400
2 1600 6400 6000 400
3 2600 10400 9000 1400
4 3400 13600 12000 1600
5 4000 16000 15000 1000
6 4400 17600 18000 -400
7 4600 18400 21000 -2600

TR = Price * output

TC = wage * number of workers.

Profit = TR - TC

we can see that at 4 units of worker the profit is maximum.

hence farm should hire 4 workers.

Answer: 4 workers

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