Answer to Question #122778 in Microeconomics for mahnoor

Question

a) Describe the relationship between the marginal and average products of labor as the employment of labor increases in the short run.

Quantity (units) Price (dollars) Marginal revenue (dollars) Marginal cost (dollars)
1 22 20 6
2 20 16 8
3 18 12 12
4 16 8 18
5 14 4 28
6 12 0 40
7 10 -4 54
8 8 -8 70

b) A single-price monopolist has the demand and marginal cost schedules given in the above table. What is the profit-maximizing level of output and price?

Answer 1

• When the marginal product of labor curve increases,the firm's marginal returns expand such that the marginal product of an additional worker exceeds the marginal product of the previous worker. The rate of increase in total product seems to accelerate at this point
• When the marginal product of labor curve falls the firm experiences diminishing marginal returns, in other words marginal product of an additional worker falls short of the marginal product of the previous worker.At this point the total product grows at a diminishing rate
• From the above table, marginal revenue decreases as the monopoly sells additional units of output while the marginal cost increases thus the profit maximizing level of output and price will be at quantity 3 where marginal revenue is equal to marginal cost (MR=MC) which is 12.