Answer to Question #194167 in Microeconomics for fahmida

Question

10. Patty’s Pizza has the production function per hour shown in the table below. The hourly wage rate for  each worker is $10. Each pizza sells for $2. 

Quantity of workers - 0, 1, 2, 3, 4, 5.

Quantity of pizza - 0, 9, 15, 19, 22, 24.

a) Calculate the marginal product of labor (MPL) for each worker and the value of the marginal product  of labor per worker (VMPL).  b) Draw the VMPL curve and use your diagram to state how many workers Patty should employ.  c) Suppose, the hourly wage rate rises to $15. State, how many workers she will hire now? Show in the  same diagram as b).  d) Now the price of pizza increases to $4, wage rate is $10. Calculate the VMPL per worker, and draw  the new VMPL curve in a new diagram. Use your diagram to determine how many workers Patty  should employ now. 

Answer 1

Solution:

a.). The table is as below:

b.). According to the diagram below, it shows the value of the marginal product of the labor curve (VMPL1). The value of the marginal product of labor equals the wage rate at 2 workers. So, Patty should employ 2 workers.

 

 

 

 

 

c.). The above diagram shows the value of the marginal product of the labor curve and the wage rates of $10 and $15. As the wage rate increases from $10 to $15, Patty’s demand for workers decreases from 2 workers to 1 worker. So, as the wage rate increases, Patty should hire fewer workers.

 

d.). The table shows the new value of the marginal product of labor (VMPL2). The value of the marginal product of the labor curve is labeled VMPL2 in the diagram. The new value of the marginal product of labor equals the wage rate at 4 workers. So, Patty should employ 4 workers.