Activity 44 marginal revenue product How many workers

Activity 44 marginal revenue product How many workers should be hired?

The interconnectedness of the two markets • As firms, in the factor products market, we’ll again thought on the margin think on the margin in terms of the but in terms of the additional revenue from an additional unit of output: of input: TR/1

Acme Yo-Yo Company produces supersonic yo-yos in a competitive products market. It can produce as many as it wants, charging $2 each. In the competitive labor market, it can hire as many workers as it wants, paying each $30 a day. How many workers should Acme hire? Number of workers hired Marginal physical product (inputs) Level of output (number of yoyos produced per day (Quantity) Product price 0 0 -- $2. 00 $0 -- 1 20 20 $2. 00 $40 = 2 x 20 $40 2 50 $2. 00 3 70 $2. 00 4 85 $2. 00 5 95 $2. 00 6 100 $2. 00 (Marginal Revenue) Total Revenue Marginal Revenue Product (P x Q) (MPP x MR)

Acme Yo-Yo Company produces supersonic yo-yos in a competitive products market. It can produce as many as it wants, charging $2 each. In the competitive labor market, it can hire as many workers as it wants, paying each $30 a day. How many workers should Acme hire? Number of workers hired Marginal physical product (inputs) Level of output (number of yoyos produced per day (Quantity) Product price 0 0 -- $2. 00 $0 -- 1 20 20 $2. 00 $40 = 2 x 20 $40 2 50 30 $2. 00 100 60 3 70 20 $2. 00 140 40 4 85 15 $2. 00 170 30 5 95 10 $2. 00 190 20 6 100 5 $2. 00 200 10 (Marginal Revenue) Total Revenue Marginal Revenue Product (P x Q) (MPP x MR)

Acme Yo-Yo Company produces supersonic yo-yos in a competitive products market. It can produce as many as it wants, charging $2 each. In the competitive labor market, it can hire as many workers as it wants, paying each $30 a day. How many workers should Acme hire? Number of workers hired Marginal physical product (inputs) Level of output (number of yoyos produced per day (Quantity) Product price 0 0 -- $2. 00 $0 -- 1 20 20 $2. 00 $40 = 2 x 20 $40 2 50 30 $2. 00 100 60 3 70 20 $2. 00 140 40 4 85 15 $2. 00 170 30 5 95 10 $2. 00 190 20 6 100 5 $2. 00 200 10 (Marginal Revenue) Total Revenue Marginal Revenue Product (P x Q) (MPP x MR)

• If the demand for Acme’s yo-yos increases, so that Acme can sell as many yo-yos as it wants for $3 each; – What effect will this have on Acme’s level of employment? Number of workers hired (inputs) Level of output Marginal physical product Product price Total Revenue Marginal Revenue Product (Quantity) (MPP) (MR) (P x Q) (MPPx. MR) 0 0 -- $2. 00 $0 -- 1 20 20 $2. 00 $40 = 2 x 20 $40 2 50 30 $2. 00 100 60 3 70 20 $2. 00 140 40 4 85 15 $2. 00 170 30 5 95 10 $2. 00 190 20 6 100 5 $2. 00 200 10

• If the demand for Acme’s yo-yos increases, so that Acme can sell as many yo-yos as it wants for $3 each; – What effect will this have on Acme’s level of employment? Number of workers hired (inputs) Level of output Marginal physical product Product price Total Revenue Marginal Revenue Product (Quantity) (MPP) (MR) (P x Q) (MPPx. MR) 0 0 -- $3. 00 $0 -- 1 20 20 $3. 00 $60 = 3 x 20 $60 2 50 30 $3. 00 150 90 3 70 20 $3. 00 210 60 4 85 15 $3. 00 255 45 5 95 10 $3. 00 285 30 6 100 5 $3. 00 300 15

A firm should hire another worker as long as the marginal revenue product is not exceeded by her or his wage • If the demand for Acme’s yo-yos increases, so that Acme can sell as many yo-yos as it wants for $3 each; – What effect will this have on Acme’s level of employment? Number of workers hired (inputs) Level of output Marginal physical product Product price Total Revenue Marginal Revenue Product (Quantity) (MPP) (MR) (P x Q) (MPPx. MR) 0 0 -- $3. 00 $0 -- 1 20 20 $3. 00 $60 = 3 x 20 $60 2 50 30 $3. 00 150 90 3 70 20 $3. 00 210 60 4 85 15 $3. 00 255 45 5 95 10 $3. 00 285 30 6 100 5 $3. 00 300 15