Answer to Question #322958 in Microeconomics for Mia

Question

Your enterprising uncle opens a sandwich shop that employs seven people. The employees are paid $32 per hour and a sandwich sells for $8. If the market for sandwiches is competitive, and your uncle is maximizing his profit:  

a. What is the value of the marginal product of the last worker he hired? 

b. What is that worker s marginal product?  

c. Suppose that your uncle purchases a new machine that increases the marginal product of each worker. How will this affect the number of workers that he hires? Explain.

Answer 1

a) At the competitive market the profit is maximal when MP=MC, MC of the last hired worker is $32 per hour

b) This worker's marginal product is 32÷8=4 sandwiches

c) He can hire more workers. Because the marginal cost doesn't change, while marginal product increases.