Q. 14 Suppose that a firm's only varia... [FREE SOLUTION]

Chapter 22: Q. 14 (page 508)

Suppose that a firm's only variable input is labor. The firm increases the number of employees from four to five, thereby causing weekly output to rise by two units and total costs to increase from $3, 000$ per week to $3, 300$ per week.
a. What is the marginal product of hiring five workers instead of four?
b. What is the weekly wage rate earned by the fifth worker?

Short Answer

Expert verified

(a) Hiring five workers rather than four results in a marginal physical product of two units of output.

(b)The total cost has risen from $3, 000$ to $3, 300$ per week due to an increase in worker inputs. Thus, the additional cost is the fifth worker's wage rate.

Step by step solution

Given Information

The firm increases the number of employees from four to five, thereby causing weekly output to rise by two units and total costs to increase from $3000$ to $3300$

The marginal physical product (part a).

Based on the information provided, the marginal physical product of hiring five workers rather than four is two units of output. The marginal physical product is calculated by considering the addition to total output due to an increase in labor inputs.

When five workers are hired instead of four, weekly output increases by two units. A two-unit increase in worker input has resulted in a two-unit increase in output. Thus, the marginal physical product of hiring five workers is two units of output.

Reason for the the raise in wages (part b).

The weekly wage rate for the fifth laborer is $$ 300$ per week.

The total cost has risen from $3, 000$ to $3, 300$ per week due to an increase in worker inputs. Thus, the additional cost is the fifth worker's wage rate.