Answer to Question #320444 in Macroeconomics for Hes

Question

6. The owner of a car wash is trying to decide on the number of people to employ based on

the following short-run production function:

Q 5 6L 2 0.5L2

where Q 5 Number of car washes per hour

L 5 Number of workers

a. Generate a schedule showing total product, average product, and marginal product.

Plot this schedule on a graph.

b. Suppose the price of a basic car wash (no undercoating, no wax treatment, etc.)

in his area of business is $5. How many people should he hire if he pays each

worker $6/hour?

c. Suppose he considers hiring students on a part-time basis for $4/hour. Do you think

he should hire more workers at this lower rate? Explain

Answer 1

Solution

a)

Total product is defined as total quantity produce by a firm for a given quantity of input. Marginal product is defined as change in output resulting from a unit change in variable inputs. Average product is per unit of variable unit.

b.)

The rule (MRP=MLC) guides a firm in its decision about how many units of a variable input should it use for its fixed input. The rule said that the firm should employ a particular input up to the point at which the revenue contribution of the additional input is equal to the cost incurred by the firm to employ this particular unit.

Firm hires 5 workers.

c.)

The rule (MRP=MLC) guides a firm in its decision about how many units of a variable input should it use for its fixed input. The rule said that the firm should employ a particular input up to the point at which the revenue contribution of the additional input is equal to the cost incurred by the firm to employ this particular unit.

Firm still hires 5 workers. So owner of car wash will be indifferent with the employment of student or people.