Question

The data below show the relationship between number of workers hired and cost and revenue for a small competite farm in Alberta.

a.) Calculate the marginal product of labour (MPL), value of marginal product of labour (VMPL), and marginal profit (MP) when the farm hires 1st, 2nd, 3rd, and 4th workers.

b) If the farm decides to maximize its profit, how many workers will hire? Explain.

c.) At what point do diminishing returns set in for the farm? Explain.

d.) List and explain two events that could shift the demand of labour.

se marginal a of Number of workers Product product uncospice latout marginal value ma marginale value product Labour of fuera $600 112 $600 12 $ 600/ 12 $600 Lia Ә0

Answer 1

Use the following formulae to calculate the marginal product, value of marginal product, total revenue, marginal revenue, total cost, marginal cost and marginal profit: MP = TPn - TPn - 1 VMP = Price* Marginal product TR = Price* Quantity MR = change in TR/change in Q TC = wages*number of workers Marginal cost = change in TC/change in Q Marginal profit = MR – MC Calculation: А в с D E 1 Value of marginal product Marginal Iproduct Output TR IMR MC Marginal profit -C2D2 Number of 1 workers Wages Price 20 3 1 600 4 2 600 12 53 600 64 600 12 =E3C3 =C3D3 FREDRES =E4°C4 =D3-D2 =D4-D3 =D5-04 =D6-D5 = (G3-G2)/(D3-D2) =(G4-G3)/(D4-D3) =(G5-G4)/(05-04) (G6-G5)/(06-05) =C4D4 =C5*D5 =C6*D6 A2B2 =A3 B3 =A4*B4 =A5 B5 =A6*B6 =(13-12)/(D3-D2) =(14-13)/(D4-D3) =(15-14)/(D5-04) =(16-15)/(06-05) =H3-J3 1=H4-14 =H5-15 =H6-J6 =E5C5 =E6 C6 Result: Activate Go to PC

G H I of A B C D E F Number Value of Marginal marginal workers Wages Price Output product product TR 0 12 0 12 70 840 720 600 12 180 600 460012220 480 600 MR 0 840 1560 2160 2640 TC MC Marginal profit 0 12 600 8.57 1211200110 12 1800 12 12 2400 15 600 From the above calculations, it is clear that the firm will hire 3 labors where value of marginal product equals to wage rate. c. Diminishing returns set in from 2nd worker where marginal product is decreasing from 70 to 60. Factors which shift the demand curve: Activate Go to PC se

1. Changes in technology 2. Changes in the number of firms Changes in technology: due to changes in technology, some workers find the job and some workers lose the job. According to usage of technology, the demand for labor will change. This will shift the demand curve either rightward or leftward. Changes in the number of firms: Due to changes in the number of firms, some workers will find the job. For example, if the number of restaurants will increase, this will increase the demand for waitresses. Thus, the demand curve for waitresses will shift to the right ward.